Ares raises $3.6 billion from Coller EQT to buy its own 2018 loan book; old investors got 150% back

Ares Management▲+0.53% — Ares Management, up 0.53 percent today has closed the biggest deal of its kind in the secondary credit market. On November 12, Bloomberg reported the Los Angeles asset manager collected €3.3 billion ($3.6 billion) for a credit secondaries continuation fund, its largest↗, with secondaries specialist Coller EQT as lead investor and Evercore▲+0.34% — Evercore, up 0.34 percent today advising ¹. A continuation fund is a vehicle set up to buy assets from a manager's earlier fund, so new investors take the old book and the old investors get their money out.

The fund holds 24 loans from Ares's 2018-vintage European direct lending fund, and investors in that predecessor vehicle, Ares Capital Europe Fund IV, received about 150% of their initial investment ². Whether that return beat Ares's own carrying marks on the assets cannot be told from the sources; the deal prices are not public.

The same week, Ares was buying data centers

While Coller EQT took the loan book off Ares's balance sheet, the European Commission cleared Ares's consortium acquisition of Prime Data Centers↗ on November 9, and Ares sold its Vietnam logistics platform to CTP for about $500 million the same day ³⁴. The pattern is deliberate: recycle old credit, buy digital infrastructure.

Ares will finance the buildings, not the chips

The buildings-not-chips call is not new. On the November 10 analyst call↗, chief executive Michael Arougheti said Ares will not finance GPUs, because the value decay on chips cannot be diligenced, but "the data center project due diligence is simpler, and the relative returns are very attractive" ⁵. The firm sizes AI capex demand at roughly $5 trillion, about $2 trillion for facilities and power, $3 trillion for chips ⁵. As reported here on November 2 in "Ares Management sizes AI spending near $5 trillion and lends on the buildings, not the $3 trillion of chips," that sizing and the choice of buildings were the story then; what is new this week is the fund close, the EU clearance, the CTP sale and the analyst split below ⁵.

Record inflows could not stop a 70.5% profit drop

Record money keeps arriving: $31 billion of third-quarter inflows, assets under management up 16% to $690.6 billion, fee-related earnings up 11% ⁶.

But quarterly net income fell 70.5% year over year in Q3, to $85 million ⁷, and insiders sold about $91.5 million of stock over 12 months against $1.3 million bought ².

Two targets $28 apart, and a fourth quarter that decides

Analysts cannot even agree on direction: Keefe Bruyette & Woods cut its target to $119 from $130 on November 10; Jefferies▼−1.25% — Jefferies, down 1.25 percent today raised its target to $147 from $132 on November 12 ²³. The spread between those two targets, $28, is the whole debate: is a loan book a specialist just bought plus a $2 trillion infrastructure lane worth a down year, or do insider selling and a falling quarter tell the truth first ²³?

Watch the next read: how much of the $173.8 billion in uninvested capital actually deploys in the seasonally strong fourth quarter ⁶. That is when the buildings thesis either gets paid or does not.