Exits and deployments
Ares Capital’s (ARCC) closed-end funds have seen higher exists over the past few quarters after the firm altered its portfolio toward higher-yielding investments. The funds are facing higher competition for deployments in high-quality debt offerings providing average to higher yields.
The trend of higher exits is expected to stabilize in the current quarter, and funds can become a net investor in the upcoming quarters. Ares Capital (ARCC) has deployed funds in 214 companies with a fair valuation of $8.9 billion, which is lower than the previous two quarters.
In the September quarter, Ares Capital is expected to deploy higher funds on the back of new programs as well as retail lending. The company deployed $540 million in the June quarter and made total exits of $759 million. It made five of 11 investments in existing portfolio companies. Investments in an existing portfolio can lead to some concentration. However, it enables Ares Capital to grow with strong, tested portfolio companies.
Here are some of Ares Capital’s peers in investment management and their assets under management:
- Carlyle Group (CG): $193 billion
- KKR (KKR): $98 billion
- BlackRock Group (BLK): $4.7 trillion
- Apollo Global Management (APO): $163 billion
Together, these companies form 5.4% of the PowerShares Global Listed Private Equity ETF (PSP).
Yields to stabilize at current levels
Ares Capital is commanding yields just below 9% compared to more than 9.5% in the previous year. The continuing fall over the past few quarters has been mainly due to lower yields on subordinated certificates in SSLP (Senior Secured Loan Program). These have also been impacted by lower transactions in high-yield debt offerings. In the September and December quarters, these yields are expected to stabilize at current levels before rising marginally in the next financial year.