Ares Plans a Smaller Private Credit Fund With Less Leverage

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(Bloomberg) — Ares Management Corp. is planning a significantly smaller flagship US direct lending fund than its previous record-breaking vehicle of $33.6 billion to speed up the deployment of capital amid broader dislocations in private markets. 

The Los Angeles-based firm, one of the world’s biggest private credit managers, is sounding out investors about the planned fund ahead of a formal launch sometime in the summer, according to people familiar with the matter who asked not to be identified discussing confidential talks.

Anticipating using significantly less leverage, as well as having fewer equity commitments, the preliminary total target size is expected to be closer to $20 billion, the people said. Direct lending funds can boost returns for investors by using leverage, but add risk in the process.

The expected size of the new vehicle, Ares Senior Direct Lending Fund IV, underscores how the big players in the $1.8 trillion market are adapting to volatility spurred by a prolonged downturn in private equity dealmaking and concerns over rising credit risks.

A representative for the US firm declined to comment on the new fund.

Alternative asset managers like Ares that are responsible for driving much of the sector’s growth are now also contending with a retail investor base that’s grown increasingly wary of underwriting standards and the disruption from artificial intelligence.

Speaking recently at a conference in Phoenix, Ares Chief Executive Officer Mike Arougheti said he hoped that “rational minds prevail” on the day that another of the firm’s vehicles — the $10.7 billion Ares Strategic Income Fund — capped withdrawals at 5% of shares after redemption requests reached 11.6%.

Read More: Ares, Apollo Cap Private Credit Withdrawals as Exodus Grows

Still, a smaller target size means a faster timeline for funds like Ares to raise and deploy capital, the people said, adding that plans are at an early stage and can change. The gyrations in markets are providing further opportunities.

“We’re constantly trying to find that right balance of making sure that we can capitalize on volatility,” Ares’ Mike Arougheti said at Bloomberg Invest last month. 

“One of the ways you do that is you understand deeply what you own so that when the markets get dislocated or disrupted, you can push in and play offense,” he added.

Away from retail, there are also signs that appetite from institutional investors remains largely robust. Ares earlier this year raised $9.8 billion and $7.1 billion for opportunistic credit and credit secondaries strategies, respectively.

The previous version of its flagship fund was the largest institutional direct lending pool ever raised, garnering about $15.3 billion in equity commitments, more than its $10 billion target. The remaining $18.3 billion was made up of capital from separately managed accounts and fund leverage. 

For the new direct lending fund, Ares is planning to secure equity commitments in the $10 billion to $12 billion range, the people said. The firm plans to use less leverage, they added.

Ares remains one of the market leaders in the private credit industry, raising a total of about $67 billion for credit investments in 2025, according to its annual results. That scale can help managers like Ares during periods of cooler private equity dealmaking, when large private credit providers can deploy capital by lending to existing borrowers.

Kort Schnabel, co-head of US direct lending at Ares, said on an earnings call in February that its “ability to be a steady capital provider at scale through periods of economic and capital markets volatility is especially valuable to our portfolio companies.”)

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