Ares Management LLC has launched a closed-end fund earmarked for high-yield corporate debt, sister magazine Buyouts reported. Ares Dynamic Credit Allocation Fund Inc. raised $320 million in its initial public offering, the Los Angeles firm announced, selling 16 million shares Wednesday evening at a price of $20 per share.
The stock began trading Thursday on the New York Stock Exchange under the ticker symbol ARDC, where the price ended fractionally lower at $19.95.
The new fund plans to invest at least 80 percent of its assets in senior secured loans and high-yield corporate bonds, in both cases primarily to companies whose debt is rated below investment grade, with as much as 20 percent in investment grade-rated collateralized loan obligations.
The firm plans to enhance the fund’s returns through the use of leverage. The prospectus said leverage could account for 50 percent of the fund’s net assets. The new fund will be part of Ares Management’s $20 billion capital markets group, an investor in corporate credit that is the largest of the firm’s three lines of business.
A spokesman said executives would not comment, because the fund remains in a quiet period pending the exercise by the underwriters of their over-allotment option. If they exercise the option in full, which is not certain, the total value of the fund could reach as much as $368 million, the firm said in a press release. The Dynamic Credit Allocation Fund is headed by two senior partners of Ares Management LLC: David A. Sachs, who serves as chairman of the new fund; and Seth J. Brufsky, its president and CEO.
A growing number of buyout firms are venturing into corporate credit markets and offering their investing expertise to retail investors. In October, for instance, The Blackstone Group raised up to $960 million for Blackstone/GSO Strategic Credit Fund, its third publicly listed mutual fund to invest in high-yield corporate credit. Kohlberg Kravis Roberts & Co. submitted regulatory filings in July to market two similar mutual funds, one closed-ended and the other open-ended. Apollo Global Management LLC also runs a closed-end listed fund.
This is not Ares Management’s first venture into public markets. It also operates a private debt business that operates domestically through Ares Capital Corp., a publicly listed business development company that has a market capitalization of $4.4 billion.
The firm also has a private equity business with $10 billion under management that buys companies for control, according to the firm’s Web site.
Lead managing underwriters for the new fund were UBS Investment Bank, BofA Merrill Lynch, Citigroup, Morgan Stanley and Wells Fargo Securities.
Steve Bills is a senior editor at Buyouts Magazine. Any opinions expressed here are entirely his own. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at [email protected].
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