WEBVTT - Ares CEO Mike Arougheti Talks Earnings, M&A Demand, 401(k) Market 0:00:02.720 --> 0:00:08.560 Bloomberg Audio Studios, podcasts, radio news. We've got to look 0:00:08.560 --> 0:00:11.200 at alternative asset managements, which is really what so many 0:00:11.200 --> 0:00:14.640 different investment managers have been talking about. Is the alternative 0:00:14.680 --> 0:00:17.639 to this whipsaw headspinning world that we've been talking about 0:00:17.680 --> 0:00:21.319 all morning. Areas Management, a global alternative investment manager with 0:00:21.400 --> 0:00:24.239 over five hundred and seventy billion dollars in assets on 0:00:24.280 --> 0:00:28.200 our management reporting second quarter earnings today, highlighting solid financing 0:00:28.200 --> 0:00:31.800 growth momentum and seeing the market come back to life. 0:00:32.120 --> 0:00:34.440 Joining us now, I'm so pleased to say, is Ares 0:00:34.479 --> 0:00:37.320 Management CEO Michael Aragetti, thank you so much to be 0:00:37.400 --> 0:00:39.159 here with us. For being here with us, I want 0:00:39.200 --> 0:00:41.800 to start with this idea that you did a really 0:00:41.800 --> 0:00:45.080 solid performance despite the fact that LBO volumes were materially 0:00:45.080 --> 0:00:47.440 lower than last year, and there's this expectation that deals 0:00:47.479 --> 0:00:49.920 were going to pick up in the second half because. 0:00:49.600 --> 0:00:50.600 Of trade certainty. 0:00:50.720 --> 0:00:54.080 Well have we gotten that certainty to really kickstart that 0:00:54.200 --> 0:00:55.320 type of corporate activity. 0:00:55.400 --> 0:00:59.520 There's a misconception that alternative asset management is just driven 0:00:59.600 --> 0:01:02.560 solely by M and A and private equity volumes. But 0:01:02.600 --> 0:01:05.480 when you really zoom out, you say, what is going 0:01:05.520 --> 0:01:09.880 on in the private markets. We are active in digital infrastructure, 0:01:10.080 --> 0:01:15.039 real estate, private credit, asset based finance, and really a 0:01:15.080 --> 0:01:18.040 broad cross section of the global economy. So if you 0:01:18.080 --> 0:01:21.120 look at our quarter, we put twenty seven billion dollars 0:01:21.200 --> 0:01:21.679 to work this. 0:01:21.760 --> 0:01:25.480 Quarter in a very subdued deal environment. 0:01:25.840 --> 0:01:29.160 What's happening now in the private markets is there's a 0:01:29.360 --> 0:01:33.760 huge need for liquidity solutions and refinancing. If you look 0:01:33.760 --> 0:01:37.080 at private equities one example, there's about three trillion dollars 0:01:37.600 --> 0:01:40.280 of private equity that's been invested that needs to get 0:01:40.319 --> 0:01:43.880 returned to invest to investors, and about a trillion dollars 0:01:44.040 --> 0:01:46.960 of new capital that needs to get put to work. 0:01:46.959 --> 0:01:50.600 So there's this huge imbalance. And so one of the things. 0:01:50.320 --> 0:01:53.040 That private market providers like us are doing now is 0:01:53.080 --> 0:01:57.200 really coming in with creativity and innovative solutions to try 0:01:57.240 --> 0:02:00.720 to buy down that install base of private equity. So 0:02:00.720 --> 0:02:03.600 we're not really reliant on deal volume. Obviously, we love 0:02:03.600 --> 0:02:06.600 it when the markets are ripping, but whether or not 0:02:06.880 --> 0:02:07.720 it's still pretty good. 0:02:08.120 --> 0:02:10.120 Does that mean that the lesson you learn from this 0:02:10.200 --> 0:02:12.800 period of when things are backlogged and again just given 0:02:12.880 --> 0:02:15.920 the breath of the success in your earnings, that you 0:02:16.000 --> 0:02:18.400 need to de emphasize some parts of the business that 0:02:18.520 --> 0:02:21.120 are more sensitive to M and A, that have more 0:02:21.120 --> 0:02:22.880 of a cyclical type of attribute to them. 0:02:23.240 --> 0:02:25.359 I think I don't know if we want to de emphasize. 0:02:25.360 --> 0:02:27.520 I think part of what we have tried to build 0:02:27.880 --> 0:02:31.480 is a business that provides solutions through cycles to our 0:02:32.000 --> 0:02:36.720 investee clients, whether they're private equity sponsors or large corporates, 0:02:36.960 --> 0:02:38.720 and our investor clients. And the only way that we 0:02:38.720 --> 0:02:42.840 could do that is to diversify the products set geographically, 0:02:42.919 --> 0:02:46.000 where we invest in, the capital structure, what returns, what 0:02:46.040 --> 0:02:48.760 the structures are. So ideally what you want to have 0:02:48.919 --> 0:02:51.640 is a business which we're demonstrating that can perform regardless 0:02:51.639 --> 0:02:52.520 of the market environment. 0:02:52.720 --> 0:02:55.320 Well, part of the diversification was also things are uncertain 0:02:55.400 --> 0:02:58.480 in the US. To Lisa's point, is that period over 0:02:58.800 --> 0:03:00.960 is certainty restored? Is it time to hit the go 0:03:01.040 --> 0:03:02.080 button again on deals? 0:03:02.160 --> 0:03:02.360 You know? 0:03:02.520 --> 0:03:04.799 It felt it's always great when I come on the 0:03:04.800 --> 0:03:06.520 show because you go to bed and you're like, oh, 0:03:06.560 --> 0:03:08.679 we're going to have this really nice, calm conversation about 0:03:08.760 --> 0:03:11.120 how certain things are and how deal lines are going 0:03:11.200 --> 0:03:12.800 to pick up, and then we get a new headline 0:03:12.840 --> 0:03:14.920 and as you said Lisa. I think you have to 0:03:14.919 --> 0:03:17.720 try to find this signal through the noise, and when 0:03:17.720 --> 0:03:20.480 we look at our portfolios around the globe, fundamental performance 0:03:20.520 --> 0:03:24.200 is still really strong. There's a lot of liquidity in 0:03:24.240 --> 0:03:26.960 the markets. There is a lot of pent up demand 0:03:27.400 --> 0:03:30.800 to transact. We saw that in June. I think once 0:03:30.840 --> 0:03:33.160 we got the tax bill done and we saw some 0:03:33.960 --> 0:03:37.680 certainty on tariffs, the market really picked up. So I 0:03:37.680 --> 0:03:40.280 don't want to say that one headline on one day 0:03:40.520 --> 0:03:43.840 is going to knock us off course, but yeah, I 0:03:43.840 --> 0:03:46.240 think there's a real pent up demand for M and 0:03:46.280 --> 0:03:49.080 a corporate m and as picking up. Private equity pipelines 0:03:49.080 --> 0:03:49.720 are picking up. 0:03:49.760 --> 0:03:51.160 So I'm still optimistic. 0:03:51.320 --> 0:03:53.800 What does that optimism look like throughout the year. What 0:03:53.920 --> 0:03:57.080 is your expectation when we get something that does look 0:03:57.240 --> 0:03:59.680 back to normal, that does see this pipeline that's being 0:03:59.720 --> 0:04:01.440 built up really be put into force. 0:04:02.520 --> 0:04:05.360 I think in the on the private market side, you 0:04:05.400 --> 0:04:07.680 have to appreciate that the structure of the capital actually 0:04:07.680 --> 0:04:10.760 has a timeline on it, and so one of the 0:04:10.800 --> 0:04:13.240 things that people need to understand is just the weight 0:04:13.400 --> 0:04:17.839 of money in the private markets requires transaction activity, and 0:04:17.880 --> 0:04:20.279 so that three point two trillion dollars that I mentioned. 0:04:20.279 --> 0:04:22.520 You know, half of it is over five years old, 0:04:23.120 --> 0:04:26.200 and there's a desire to get that money back to investors, 0:04:26.200 --> 0:04:29.360 to get the gears moving again. And so even if 0:04:29.360 --> 0:04:30.839 you don't have M and A, people are going to 0:04:30.839 --> 0:04:33.160 be looking for ways in the secondary market, for example, 0:04:33.520 --> 0:04:35.719 to do transactions. So I think you're going to continue 0:04:35.720 --> 0:04:37.719 to see, you know, the weight of the money and 0:04:37.720 --> 0:04:41.599 the time constraint push companies into the market, and I 0:04:41.600 --> 0:04:45.200 think on the corporate side, you know, there's there's a 0:04:45.279 --> 0:04:46.320 desire to grow too. 0:04:47.120 --> 0:04:47.880 We did see. 0:04:47.680 --> 0:04:49.640 Corporate M and A pick up dramatically even in the 0:04:49.680 --> 0:04:52.280 last week. I'm sure if you talk to the cell 0:04:52.360 --> 0:04:56.000 side bankers, they'll tell you the level of pipeline pipeline 0:04:56.040 --> 0:05:00.000 activities picking up dramatically. So you know, I can't quantify 0:04:59.880 --> 0:05:02.000 what that looks like, but if June was an indicator 0:05:02.440 --> 0:05:04.560 and we get some stability here, I think third and 0:05:04.600 --> 0:05:06.000 fourth quarter could be pretty robust. 0:05:06.120 --> 0:05:09.640 You mentioned the tax bills behind us, tariff uncertainty potentially 0:05:09.680 --> 0:05:11.320 some of it behind us, and you see a lot 0:05:11.360 --> 0:05:13.760 of signal less noise coming from that, and then there's 0:05:13.800 --> 0:05:15.000 this idea of deregulation. 0:05:15.160 --> 0:05:17.719 Is that's what pushing potentially some of this M and A. 0:05:17.920 --> 0:05:20.600 I think there's absolutely a tone that's funny. You saw 0:05:21.040 --> 0:05:25.599 pre Liberation Day January February, just the exuberance with the 0:05:25.640 --> 0:05:29.760 new administration pro business deregulation, and you saw people come 0:05:29.760 --> 0:05:32.520 off the sidelines dramatically, and then we took a pause. 0:05:33.000 --> 0:05:35.400 Now that we've digested, you're beginning to feel that again. 0:05:35.440 --> 0:05:37.320 So I don't want to say that the animal spirits 0:05:37.320 --> 0:05:41.440 have been unleashed, but the confidence that the administration wants 0:05:41.800 --> 0:05:45.200 to push transaction volume is pro business and focused on drag, 0:05:45.240 --> 0:05:47.400 I think is going to be a catalyst for sure. 0:05:47.600 --> 0:05:50.680 When you talk, I hear an economy flush with capital. 0:05:50.880 --> 0:05:53.880 I hear an economy that has plenty of access to financing. 0:05:54.320 --> 0:05:57.680 I hear that financing is not tight in any capacity. 0:05:57.920 --> 0:06:01.080 We're talking about titus spreads in the global credit market 0:06:01.120 --> 0:06:03.479 in public markets going back to two thousand and seven. 0:06:04.160 --> 0:06:06.520 Do you think it is appropriate to start talking about 0:06:06.560 --> 0:06:09.200 more accommodation from the FED or do you think that 0:06:09.200 --> 0:06:12.760 that's problematic given what you're actually seeing on the ground 0:06:12.839 --> 0:06:14.560 with some of the companies that you're investing in. 0:06:15.920 --> 0:06:18.000 Everything that we're seeing says that the economy is on 0:06:18.279 --> 0:06:19.040 stable footing. 0:06:19.120 --> 0:06:20.480 We're seeing continued growth. 0:06:20.520 --> 0:06:23.680 As an example, we reported earnings in our publicly traded 0:06:23.720 --> 0:06:29.000 BBC thirteen percent year over year ebitdog growth and those companies, 0:06:29.040 --> 0:06:32.599 while LeVert, have actually digested the higher cost of capital 0:06:32.680 --> 0:06:35.040 pretty well. So to your point, we're living in a 0:06:35.080 --> 0:06:39.560 higher rate environment. The plumbing is working, nothing's broken. Almost 0:06:39.600 --> 0:06:44.320 every liquid market is near all time tights, so it 0:06:44.360 --> 0:06:48.159 doesn't feel necessary to take a more accommodative stance. I 0:06:48.200 --> 0:06:51.680 think tariffs will be inflationary. I know that there's an 0:06:51.760 --> 0:06:54.080 argument that some people put forward that it won't be, 0:06:54.160 --> 0:06:56.240 but to the extent that they will be, and the 0:06:56.279 --> 0:06:58.960 economy continues to grow, that would argue for rates to 0:06:59.000 --> 0:07:01.800 stay higher for longer, or at least to see a 0:07:02.320 --> 0:07:03.280 slower trend down. 0:07:03.600 --> 0:07:06.240 So, Mike, in this quarter you had really robust fundraising 0:07:06.360 --> 0:07:08.159 coming from a variety of sources, but part of that 0:07:08.320 --> 0:07:10.920 was wealth too. We're in this environment right now where 0:07:10.960 --> 0:07:13.640 there's an expectation that the Trump administration is going to 0:07:13.640 --> 0:07:16.480 open up four A one ks to some private assets. 0:07:16.520 --> 0:07:19.560 You've seen some of your peers, KKR, Blackstone, Blue Owl 0:07:19.760 --> 0:07:22.480 already set up partnerships with four oh one K providers 0:07:22.880 --> 0:07:24.400 is that something you're looking at as well. 0:07:24.520 --> 0:07:27.120 Yeah, we're probably the number two or number three player 0:07:27.200 --> 0:07:29.840 in the wealth channel right now. We raised about six 0:07:29.840 --> 0:07:33.760 point three billion dollars in wealth product alone this quarter. 0:07:35.640 --> 0:07:39.840 Close to half of our AM is in permanent capital 0:07:39.920 --> 0:07:43.840 vehicles right now. The four to one K conversation is 0:07:43.840 --> 0:07:48.840 an interesting one. I am a huge believer in increasing 0:07:48.920 --> 0:07:53.320 access to alternatives to the individual investor, whether that's directly 0:07:53.640 --> 0:07:57.000 or in the retirement market. There's no reason that an 0:07:57.040 --> 0:08:01.040 individual shouldn't have the same access to alternative assets that 0:08:01.520 --> 0:08:05.280 institutional investors do. The four toh one K question, I 0:08:05.320 --> 0:08:08.760 think is reason for enthusiasm if you look at the 0:08:08.800 --> 0:08:11.320 size of that market and the solutions that are already there. 0:08:11.720 --> 0:08:15.040 That market for forever has really been fee first, and 0:08:15.080 --> 0:08:18.320 when we talk about fiduciary duty to the retail investor 0:08:18.480 --> 0:08:21.640 in defined contribution, it's what's the cheapest solution that I 0:08:21.640 --> 0:08:24.200 can get, And I don't think that that's the way 0:08:24.200 --> 0:08:25.120 that you want to be. 0:08:25.520 --> 0:08:27.760 Shopping for investment solutions. 0:08:28.560 --> 0:08:33.040 It is a complicated set of circumstances in the sense 0:08:33.080 --> 0:08:36.000 that you still have to get through the executive order, 0:08:36.040 --> 0:08:38.400 which we haven't seen, although we expect to come then 0:08:38.440 --> 0:08:40.600 we need to see rulemaking. There's going to be a 0:08:40.640 --> 0:08:45.400 whole flurry of class action lawsuits. I'm sure we're going 0:08:45.440 --> 0:08:48.240 to have to get plan sponsors comfortable with the idea, 0:08:48.280 --> 0:08:50.160 and then we're going to have to demonstrate that we 0:08:50.200 --> 0:08:55.280 can deliver excess return net of new fee agreements to 0:08:55.400 --> 0:08:57.600 the investor that get them excited. 0:08:57.960 --> 0:08:59.439 So we're enthusiastic. 0:08:59.520 --> 0:09:01.920 We have product that's already geared and ready to go 0:09:02.000 --> 0:09:05.800 into that market. We have had significant dialogue with potential 0:09:05.840 --> 0:09:08.920 partners in that market. So if and when that time comes, 0:09:08.960 --> 0:09:11.440 I think you'll probably see us jump in, just given 0:09:11.480 --> 0:09:13.559 our leadership position there. But we're being a little bit 0:09:13.600 --> 0:09:16.160 more tempered in our enthusiasm. 0:09:16.200 --> 0:09:16.400 Yah. 0:09:16.400 --> 0:09:18.320 It's interesting to hear some of that caution because other 0:09:18.360 --> 0:09:20.440 people have decided that this is off to the races 0:09:20.480 --> 0:09:22.360 for getting that involved in the four oh one K 0:09:22.760 --> 0:09:25.280 And part of the criticism that comes up sometimes is 0:09:25.280 --> 0:09:27.360 they're going to get players that dump their worst assets 0:09:27.360 --> 0:09:30.240 in there, and then that brings with it more regulation 0:09:30.360 --> 0:09:31.760 and hurts the industry as a whole. 0:09:32.120 --> 0:09:34.600 Is that a real concern. I've heard people say that 0:09:34.400 --> 0:09:35.920 that is not the concern. 0:09:36.720 --> 0:09:40.360 I think one of the significant transformations we've seen in 0:09:40.800 --> 0:09:44.679 wealth from prior versions is you are getting the largest 0:09:45.120 --> 0:09:47.800 brand name managers around the world that are coming into 0:09:47.840 --> 0:09:51.760 this market with institutional quality product. 0:09:52.800 --> 0:09:55.360 We're not going into these markets because we have to. 0:09:55.880 --> 0:09:58.800 We're going into these markets because we want we want to, 0:09:58.840 --> 0:10:02.640 and so there's really no motivation or incentive to do that. 0:10:02.760 --> 0:10:06.040 So I don't really understand that. But one of the 0:10:06.080 --> 0:10:08.600 things I always try to say to our people and 0:10:08.640 --> 0:10:11.520 even to our investors in the research community, when the 0:10:11.559 --> 0:10:14.240 four oh one K market opens, similar to just the 0:10:14.240 --> 0:10:17.840 wealth market opening, it doesn't have a transformational. 0:10:17.000 --> 0:10:19.160 Impact on what we can do as a manager. 0:10:20.080 --> 0:10:22.840 I'm just now taking assets that otherwise would find their 0:10:22.880 --> 0:10:26.680 way into an institutional fund and putting them into somebody's 0:10:26.720 --> 0:10:30.920 four oh one K. That's exciting because it now increases accessibility, 0:10:30.960 --> 0:10:34.600 it opens up new fundraising markets, it diversifies our business, 0:10:34.640 --> 0:10:36.960 but it doesn't give me a new product to then 0:10:37.080 --> 0:10:41.720 go into the market and deliver value to my customer. 0:10:42.200 --> 0:10:45.319 So we're excited about it, but you know, until we 0:10:45.360 --> 0:10:47.520 get to a world where we're feeling like we're constrained 0:10:47.520 --> 0:10:51.120 in our ability to raise capital and other channels, I 0:10:51.240 --> 0:10:54.560 just you know, again, I have temperate enthusiasm. If you 0:10:54.559 --> 0:10:57.520 look at our fundraising this quarter, we had our second 0:10:57.600 --> 0:11:01.000 largest fundraising quarter on record. We raised about twenty six 0:11:01.000 --> 0:11:05.120 billion dollars of capital this quarter. The fundraising has not 0:11:05.280 --> 0:11:07.680 been the challenge I think for most all managers. Really, 0:11:07.720 --> 0:11:10.720 can I find great quality things to invest in? And 0:11:10.800 --> 0:11:12.680 so the idea that we're going to continue to bring 0:11:12.679 --> 0:11:16.000 more capital, and you know, it has as much possible 0:11:16.080 --> 0:11:17.240 risk as it does opportunity. 0:11:17.440 --> 0:11:20.880 Michael Aauergetti Areas Management, Chief executive Officer. You've reported earnings, 0:11:20.920 --> 0:11:25.760 you go on vacation now Monday. Okay, well a lot 0:11:25.800 --> 0:11:27.360 of people are hoping to do the same. Thank you 0:11:27.360 --> 0:11:28.959 so much for being with us this morning.