ARES - Ares Capital: As The Company And Industry Grow So Do The Risks
2024-08-01 07:09:27 ET
Summary
- Private credit has grown over the past five years, more than doubling industry AUM and creating new challenges for asset managers.
- Ares Capital (ARCC) is the largest business development company by market capitalization, managed by Ares Management (ARES), the world's largest direct lender.
- Incentivized by increasing management fees, ARCC has similarly doubled its enterprise value in the past five years, capitalizing on industry tailwinds and the growth of alternative lending.
- Despite ARCC's strong performance and growth, increasing competition and declining interest coverage ratios pose systemic risks that could reach ARCC.
It is high time to dive back into the world of private credit. The past five years have reshaped the credit industry as the pandemic era transitioned into the era of unprecedented rising interest rates. As a reminder, just last year, the federal funds rate increased to the highest level in decades and has remained steady for months.
The Federal Reserve is slated to meet this week to discuss monetary policy and the possibility of near term rate cuts. Investors are on the edge of their seats as the Federal Reserve continues to walk the interest rate tight rope. Cut rates too soon and inflation could ramp back up. Wait too long and unforeseen circumstances could force us back into a hard landing scenario....
Ares Capital: As The Company And Industry Grow, So Do The Risks