Private Credit Gods are Smiling

No matter how you look at it, the expansion is stunning.

Ares Management Corp. this week said it gathered a $34 billion pool of capital for direct lending, the industry’s largest ever. Of that, $15 billion was raised in equity, above the firm’s target. If Ares continues this track of overall fundraising, it could be another record for the firm this year.

In a conversation with Ares Chief Executive Officer Michael Arougheti, he said the industry’s largest players are getting more and more share. His latest fund comes on top of Goldman Sachs Group Inc. closing a fresh private credit fund months earlier, as the bank grows its direct lending expertise.

“The market is consolidating, and even though people are raising their hands and saying we are in the private credit market... more money, more deals are flowing to the larger players,” Arougheti said. “They can get funds deployed without sacrificing returns.”

He thinks there’s only going to be more concentration toward the biggest firms moving forward. And even though $34 billion seems like a massive sum, there’s probably more where that came from.

“If you raise a $34 billion pool, investors want vintage diversification, you’re trying to invest $10 to $12 billion per year,” Arougheti said. “It’s a large number for sure, but it’s not a large number when you break it into thirds or quarters. We’ve invested $9 billion already.”

His optimism is bucking broader concerns. The big private credit firms saw their stocks tumble on Friday after economic data all week showed weakness. Savita Subramanian, head of US equity and quantitative strategy at Bank of America Corp., told Bloomberg Television on Friday that concerns about the economy would be more profound in the private markets that are more exposed to lending to broader America.

But before stocks tumbled, KKR & Co.’s shares touched a new record after reporting second-quarter results. There’s another dynamic on the firm’s side: Private equity exits are coming back. The firm expects $500 million in exits this quarter as markets re-open. “If this momentum continues, we believe you will see even more activity and announced deals and exits in the second half of the year,” KKR Co-CEO Scott Nuttall told analysts this week.

Arougheti is similarly optimistic about private market dealmaking ticking higher. With rate cuts now expected as early as September, and even more likely after the softer economic data, the capital markets are likely to open up further, he said.

Dealmakers across the world are holding onto that optimism. With the merger market and capital markets showing signs of life, Perella Weinberg Partners on Friday said that second-quarter revenue touched a record for the firm. Paul Taubman’s PJT Partners Inc. also recorded the highest quarterly revenue in the firm’s history.

These firms are also feasting as the economy weakens. A wave of restructuring has been proving to be a moneymaker for the boutique investment banks, with Houlihan Lokey also saying that it had near-record restructuring revenues. At least so far, for an economy where signs of stress are mounting, Wall Street is getting by just fine.

More to come. Next week is a huge week, we have a ton of conversations among the C-Suite with the newly-named CEO of Vanguard, Salim Ramji, on Monday and the CEOs of Robinhood, Lucid Motors, Resy and Rivian joining us throughout the week. We have just gotten through our first month at our new show, Bloomberg Open Interest, what a rush!!! Join us from 9:00 am to 11:00 am Eastern time, daily. Tips, opinions and ideas are always welcome at sbasak7@bloomberg.net.