Ares PE trouble fundraising?!??

Freshman at Target here and was looking at PE summer analyst positions in the future and came across Ares. While Bain Capital just closed a $12b fund, noticed that Ares had a higher target and is still only at 4.3b (2016 vintage was $8b).

What impact should this have in the event they raise significantly less capital for their sixth fund (ACOF VI)? Would they still be considered a top SA choice over EBs?

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Comments (50)

  • Associate 3 in PE - LBOs
Apr 30, 2021 - 2:21pm

IMO, no. You'd be better off at an EB and then recruiting to join a growing firm. I'm familiar with Ares and their LP base. A number of larger LPs are sitting out of the latest fund. Performance issues and issues with behaving how LPs want (co-invest, etc.). Those reasons combined with an allegedly toxic culture makes me think a more traditional path is better for you.

  • Associate 3 in PE - LBOs
Apr 30, 2021 - 2:32pm

Sure thing. I need to stay anonymous so for returns I'll just point you to calphers website. It's California's pension fund. Usually can find returns for bigger PE funds there, including Ares. ACOF V is marked at 0.9x / -4.1% IRR... not super attractive to LPs. Additionally they lost a big chunk of their HC team that did great work. On behavioral stuff, it's just that LPs always want high quality co-investment opportunities to blend down their management fee costs. Ares just doesn't play as nice / provide much co-invest. They sometimes elect to partner with other GPs which limits available co-invest (LGP recently). When they have provided co-invest, it's out of a negative IRR fund which tends to leave LPs even less excited about the GP. Here's a link to calphers and just search Ares (not sure if the link will work): https://www.calpers.ca.gov/page/investments/asset-classes/private-equit…

  • Associate 1 in PE - LBOs
Apr 30, 2021 - 2:54pm

TingFling18

Interesting thanks! Could you expand a bit more about these performance and behavioral issues?

Current Ares employee and happy to provide a follow-up here. The poster above mentioned some interesting points that I can comment on from my own experience. 1) ACOF V returns. Calpers data lags 1-2 quarters and as of the most recent update (Ares earnings from Q1'21) you can see the recent momentum within ACOF as it was up 16% on the quarter and is returning 8%+ gross as whole (and if you listened to the earnings transcript, poised for a solid recovery). 2) Co-invest interest / ability. This one baffles me. Ares is perhaps one of the MOST active when it comes to LP co-investment opportunities and has done so with two of their most recent deals (Tricor Braun and Vmo). In fact, one of the differentiators of the platform is their willingness to lean in to co-invest (though tbh as an employee I'd love to hold more of the equity in those deals rather than syndicate out). 3) Culture. This one has been discussed at length recently on this forum. All I can say is from my own experience the people are extremely bright, nice, respectful and there has been a push to retain junior talent (though tbd on how this ends up playing out). I can't speak from experience, but have heard that culture was quite toxic before 2018 when there was a change initiated from the top down (bad apples at the top were asked to leave). As for the HC departure that was one partner (amazing guy) who left to start a new fund with the former head of HC PE at KKR (his former boss) and it honestly makes so much sense (the goal of everyone at that level for the most part is to start your own thing and get much more meaningful carry dollars than you could ever expect at an institutional fund).

In summary take the comment from the poster above as you may, but IMO it unfortunately shows how people with limited secondary information perpetuate ideas that may not be the most sound way to look at things.

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Controversial
  • Associate 3 in PE - LBOs
Apr 30, 2021 - 3:12pm

Lol at the end. Still need to stay anonymous but I am very close to your LP base (wink wink). I just totally disagree with your points #2 and #3 based on conversations with the leaders of your firm who (behind closed doors) admit you fall short on co-invest. All the platform differentiated points, etc are just outward marketing fluff that doesn't fly when you're in the room. Barely hitting an 8% hurdle including credit lines isn't something to pat yourself on the back for. Don't mean to be too mean but if we are gonna start calling people out for limited secondary insights (which is not true in my case, it's primary), we can take the gloves off a bit more... there is growing concern in the LP community that Ares just isn't very good at PE anymore. This is coming through in your current fundraising (hard to argue it's not, even college kids are picking up on it. Albeit, very bright college students.) There is hope for Ares credit. Probably too blunt but those are the facts. Your HC guy left bcs the other partners were losing him money. Partners want platforms where the other partners are also good at making money.

Funniest
May 1, 2021 - 3:43pm

Serious questions as I have no clue (but do have a hypothesis), but how did paying 20x for Coopers Hawk pre-pandemic work out for you guys?

Array
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  • Investment Analyst in HF - Event
May 1, 2021 - 7:31pm

Associate 1 in PE - LBOs

TingFling18

Interesting thanks! Could you expand a bit more about these performance and behavioral issues?

Current Ares employee and happy to provide a follow-up here. The poster above mentioned some interesting points that I can comment on from my own experience. 1) ACOF V returns. Calpers data lags 1-2 quarters and as of the most recent update (Ares earnings from Q1'21) you can see the recent momentum within ACOF as it was up 16% on the quarter and is returning 8%+ gross as whole (and if you listened to the earnings transcript, poised for a solid recovery). 2) Co-invest interest / ability. This one baffles me. Ares is perhaps one of the MOST active when it comes to LP co-investment opportunities and has done so with two of their most recent deals (Tricor Braun and Vmo). In fact, one of the differentiators of the platform is their willingness to lean in to co-invest (though tbh as an employee I'd love to hold more of the equity in those deals rather than syndicate out). 3) Culture. This one has been discussed at length recently on this forum. All I can say is from my own experience the people are extremely bright, nice, respectful and there has been a push to retain junior talent (though tbd on how this ends up playing out). I can't speak from experience, but have heard that culture was quite toxic before 2018 when there was a change initiated from the top down (bad apples at the top were asked to leave). As for the HC departure that was one partner (amazing guy) who left to start a new fund with the former head of HC PE at KKR (his former boss) and it honestly makes so much sense (the goal of everyone at that level for the most part is to start your own thing and get much more meaningful carry dollars than you could ever expect at an institutional fund).

In summary take the comment from the poster above as you may, but IMO it unfortunately shows how people with limited secondary information perpetuate ideas that may not be the most sound way to look at things.

The whole thing about teams working together is a nice sound bite for clueless LPs, but rarely is this a true source of differentiation. Every rinky dink MM PE shop now has a credit, RE, or special sits arms. Doesn't change the caliber of those firms.

A few cases where this type of pitch has any real substance are firms that are tier 1 on all areas like KKR, BX, or APO. Ares is a tier 1 credit shop, but tier 2/3 in everything else.

In today's PE landscape, the primary drivers of true differentiation are: sector focus, sourcing, and demonstrated track record of operational value-add (not just having a random unemployed ex-CEO as an "advisor"). Intellectual capacity is a wash between the top 100 real shops and thus offer no competitive edge

  • Prospect in IB - Gen
Apr 30, 2021 - 4:23pm

What are your thoughts on their RE arm? Seems like they are growing with their recent fund being oversubscribed

  • Associate 3 in PE - LBOs
Apr 30, 2021 - 7:49pm

Energy and Neiman Marcus. Maybe some shipping too unless I'm merging firms? But what do I know, I'm just someone with limited secondhand knowledge according to the Ares 1st year on here

  • Associate 1 in PE - LBOs
Apr 30, 2021 - 9:43pm

I wonder if it has anything to do with their ties to Leon Black.

Most Helpful
May 1, 2021 - 4:52pm

For the OP, the Ares analyst program is one of the best opportunities you can get out of undergrad if you like finance.

There's a really healthy debate going on between the two people in this thread and each have valid perspectives, but as analyst fresh out of college, I think your priorities are to learn skills, not get obliterated, and have good exit opportunities.

1) The people at Ares are smart and know how to critically evaluate businesses. You'll learn by being a part of the deal team, as you go to most all management and diligence meetings. The associates usually run the models on all the deals once things get serious, but you'll still get reps in on early looks and will run with diligence workstreams with the VP on more intense deals (which is the more interesting part of the job vs. running endless cases and sensitivities).

2) Your lifestyle as an analyst is quite good and your job is much less stressful compared to the associate job (see model comment above)

3) Working in an investing or buyside environment positions you much better for exit opportunities vs. working in the sellside. In addition to learning to think like an investor, you get to see deals that other teams are working on and develop a sense for why some companies are good vs. bad investments through osmosis. In addition, you'll do primary research (e.g. GLG/Guidepoint calls) on deals/sectors, which most analysts on the sellside don't even know exists (much less how important it is). All this means that if you want to recruit for a different PE / HF a year or two in, you're a much more appealing candidate than most of the banking analysts. Additionally, Ares gives its analysts offers to become associates once the traditional "recruiting season" kicks off, so you usually have 2 - 4 years of job security, should you want it. 

There are some real cons to working at Ares, like the closed door culture; emphasis on process and endless memo creation (analysis paralysis); the historically narrow investment committee strike zone in terms of business characteristics, valuation, industry; the embargo on recruiting to another established LA private equity shop (for example, LGP and Apollo are off limits because of close ties between founders), and you need written permission from Ares to work with the major headhunters, but all in all, it's a great job.

May 7, 2021 - 8:01pm

Thank you this is very insightful. Do you have any additional thoughts on how Ares analyst program compare directly to BB's, EB's or even Tech Banking out of undergrad? Would banking give better optionality? Is the learning curve very steep or does Ares have a good analyst program in place to teach similar skills? 

  • Prospect in IB-M&A
May 7, 2021 - 8:46pm

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