Mike Arougheti, the CEO, co-founder, and president of Ares Management (ARES), envisions the private credit market, currently valued at $1.5 trillion, doubling to $3 trillion within five years. A significant portion of this growth is anticipated to come from banks' balance sheets.
Arougheti made these remarks during the Global Credit Forum hosted at Bloomberg's London Office. He emphasized that the financial sector remains "massively overbanked," suggesting that by merely financing existing equity in the market, they can reach the next $1.5 trillion milestone.
Additionally, Arougheti predicts that private credit deal sizes will increase. He believes that the private credit market's current capacity would support club deals ranging from $8 billion to $10 billion. This represents substantial growth from the current record of a $5.3 billion loan package that funded Vista Equity Partners' refinancing of Finastra Group Holdings Ltd.'s debt in August, led by Oak Hill Advisors and Blue Owl Capital.These developments underscore the rapid expansion of the private credit market, where billion-dollar private loans were rare just a few years ago.
Arougheti's observations align with a trend of major players entering the private credit market, drawn by the potential for higher returns amid rising base rates and expanded spreads. However, he emphasizes that private credit and traditional banks are not in direct competition, especially when banks are in transition.
While some banks, like Societe Generale and Barclays, are venturing into the market, others, like Swiss Life's investment arm and Baillie Gifford, are cautious due to transparency concerns, liquidity constraints, and better returns elsewhere. Abrdn Plc is another player that lends to investment-grade borrowers but avoids riskier companies common in this market.
Ares Management, a NYSE-listed company with $378 billion in assets under management and a market capitalization of $31.8 billion, is renowned for its private credit expertise. Arougheti's insight into the market's success highlights the importance of control and bilateral relationships, where aligned interests aim to maximize enterprise value without compromising performance. Investment Disclaimer: The information provided in this article is for informational purposes only and should not be considered as investment advice. Investments in financial markets carry risks, and individuals should conduct their research and seek professional guidance before making investment decisions. The opinions expressed in this article are those of the author and interviewee and do not necessarily reflect the views of any specific financial institution or investment firm. Past performance is not indicative of future results, and there is no guarantee that any specific investment strategy will be successful. Always consider your individual financial circumstances and risk tolerance before making investment choices.