Ares reaffirms commitment to core mid-market

Ares Management has outlined its commitment to the core mid-market, despite raising €30bn (£25.4bn) for its latest European direct lending fund.

The amount raised – announced last month – makes it the largest institutional direct lending fund to date based on LP equity commitments.

Despite the record fundraising activity, the private credit behemoth is sticking to the same strategy, and crucially, the same size of deals it began nearly 18 years ago.

Ares’ direct lending franchise in Europe was set up in 2007, with the asset manager lending to companies with EBITDA over €10m. Fast forward to today and the alternatives giant is still investing in companies with over €10m EBITDA, while many competitors have sought to increase their deal sizes.

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According to PitchBook data, in the fourth quarter of 2020 the median deal size for direct lenders was €89.7m, and the median EBITDA was €18m. In the second quarter of 2024 the median deal size was up to €300m, while the median EBITDA was €40m.

“Our main focus has been on backing mid-market companies right across Europe,” Michael Dennis (pictured left) partner and co-head of European credit, told Alternative Credit Investor. “Nothing changes with this fundraise.

“This is for a number of reasons, not least because the commercial banks are continuing to cede market share. With a big fund, opportunistically you can back larger companies as and when they arise, but if you look at the current market dynamics, the liquid markets have come back pretty strongly. There is currently more liquidity for those larger companies, so it doesn’t make a lot of sense as the relative value sits better in our core middle market franchise.”

Although he did add that if those markets close again, the fund has the scale and the capability to back those larger companies.

For Dennis and his co-head Matt Theodorakis (pictured right), one big advantage Ares has is the sheer size of the team. When the US-based group first set up its European direct lending strategy there were 30 investment professionals across four offices. Now, there are over 90 people as part of the team across seven offices, with the firm reportedly exploring adding two more branches in Europe. With the new fund now locked and loaded, the team will continue to hire.

“We have continued to invest significantly in our business – every vintage, every year, we add resources to what we do,” Dennis said. “We have 90 investment professionals, which we believe is a factor of two-to-three times larger than any other direct lending team in Europe. We continue to invest so we can take advantage of the growing market opportunity and also make sure we’re on top of monitoring the existing portfolio.”

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He added that talent, however, is always difficult to come by and “the size of our team is one of our best assets”.

The team has already deployed €6.4bn across over 50 investments from the fund and Theodorakis says they are excited to continue investing with more certainty in the market.

“Going forward, we’re excited as we think recent historical macro concerns have calmed down a bit,” he said. “From an inflation perspective, we are back to near historical levels in our core markets.

“We do feel that alongside some of the interest rate guidance we’re seeing, there is more certainty in the market today than in prior years.”

But with an existing portfolio of over 200 companies already, and some potential challenges on the horizon – such as how US President Donald Trump’s policies might impact the market – the team is also focused on making sure existing investments do not turn sour. For this, the firm has a dedicated portfolio team to monitor existing investments.

“Our portfolio is a core competitive advantage for us both from a deployment perspective and knowledge of sectors,” Theodorakis added. “We have sector specialty expertise that has helped us generate strong risk adjusted returns. Ares has been a strong believer in having a dedicated portfolio function, that’s now a sizeable team inside of that 90, and we’ve continued to scale that as our portfolio has grown.”