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Private Credit ETFs: A New Trend on the Horizon?
Ares Management Corporation's co-president Kipp deVeer is poised on the brink of a burgeoning investment trend yet has firmly stated the firm is not currently focusing on launching a private-credit ETF. This position comes in the wake of increasing momentum in the sector as competitors like Apollo Global Management unveil their own offerings. As the appetite for private credit grows among retail investors, who are drawn to the allure of higher returns, Ares opts to carve out its niche within the existing wealth channels.
The Expansion of Private Credit
The private credit market is undeniably on the rise. Ares' reported record of $92.7 billion in new capital raised in 2024 reflects not just its success but the broader trend towards private investments. The firm's strategic focus on non-traded real estate investment trusts and business development companies (BDCs) highlights a deliberate strategy to stay ahead of market demands without entering the ETF arena. This aligns with industry insights that suggest private credit might see substantial growth, buoyed by favorable economic conditions and an expanding middle-market sector.
Strategic Growth Over ETF Enthusiasm
According to deVeer, while liquidity-driven products are drawing attention from many asset managers, Ares is channeling efforts into diversifying distribution through trusted channels within wealth management. Ares’ success in closing nearly €30 billion for a European direct lending fund underscores this strategy, suggesting a robust understanding of regional market dynamics. Blair Jacobson, co-president, points to Europe’s private credit market as being significantly behind the US, which posits a compelling opportunity for Ares' future initiatives.
What's Driving Investor Interest?
Investors remain eager for reliable assets, especially given the heightened scrutiny placed on traditional lenders post-2008 and amid recent regional bank instability. Private credit promises a form of exposure that is less beholden to the tumultuous events impacting traditional financing avenues. With US direct lending making up nearly 40% of Ares’ capital raised, it illustrates that investors are prioritizing stable returns over high-risk ventures in a volatile landscape. This aligns with a broader market forecast predicting a booming $2.8 trillion private credit sector by 2028, as reported by Morgan Stanley.
Comparing Strategies: Ares vs. Competitors
As other firms pursue liquidity-driven ETFs to tap into the private credit sector, Ares distinguishes itself by taking a careful, measured approach, anticipating potential market corrections. This cautious optimism is mirrored in Ares' significant growth; its assets under management (AUM) surged to $464 billion largely due to the resilient demand in private credit. Its experimental shift toward capitalizing on non-traditional investments like BDCs sets Ares apart from its competitors who are seemingly rushing to adapt to new trends in ETF offerings.
Impacts of Market Volatility on Strategies
The current economic landscape poses unique challenges and opportunities for investment firms. Ares executives, including Jacobson, are keenly aware of evolving market factors, with investor sentiment poised to leverage potential M&A activities despite elevated capital costs. Although they remain concerned about market volatility, Ares is well-prepared to adjust strategies to meet investor needs, indicated by their unprecedented direct lending fund numbers and sustained commitment to operational excellence.
Conclusion: The Road Ahead for Ares Management
Investors curious about the direction of Ares Management should stay tuned. The firm may not be focusing on private-credit ETFs right now, but its strategic investments in alternative channels hint at a long-term vision grounded in diversification and adaptability. Ares continues to ride the wave of a population seeking both immediate liquidity and sustainable returns, positioning itself well for future developments. As the private credit market evolves, firms like Ares that adapt thoughtfully to investor needs and market dynamics will likely lead the charge.
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