NEW YORK (The Deal) -- Ares Management (ARES) said important lines of its businesses will benefit from the departure of General Electric (GE) from its financial businesses, but Ares' management didn't address specifically whether it would be a bidder for any of the assets on the block.
Speaking with analysts on the quarterly conference call following the release of its first-quarter earnings, Ares management said, "GE exiting the business is a very, very good thing for Ares," especially in operations such as tradable lending.
Because of the sheer magnitude of its balance sheet, GE often had the lowest cost of capital in auctions for certain credit opportunities, so it could be the low-cost lender in many situations. With the company's departure from the capital complex, "We should see fees go up and margins widen," Ares management said on the call.
Ares management was not asked -- nor did it volunteer -- whether it was preparing a bid for parts of GE's business, especially the GE Antares unit, for which preliminary bids were reportedly scheduled to be handed in last week. Antares is basically a provider of capital for private equity lending, and while Ares has been one of the alternative asset firms mentioned as a potential buyer, PE firms in general are seen as being at a disadvantage to any of the banks that might bid on the assets. Wells Fargo & Co. (WFC) and Sun Trust (STI) have been identified in several news accounts as potential suitors for Antares.
As would be expected, the rumored suitors have, to a one, declined to comment on what level of interest -- if any -- they have in the assets.
There wasn't any real clarity on the conference call regarding the disposition of Ares' joint venture with Antares in a $16 billion senior secured-loan program. "Our hope is that through this process there is a resolution that's good for the SSLP," Ares management said during the conference call, adding, "We'll be in a good position," without any elaboration.
Ares management said it expected consolidation in the alternative asset-management sector to continue. "The consolidation trend is undeniable," management said on the conference call. Ares itself has contributed to the trend, having added Energy Investors Funds, an asset manager in the energy infrastructure industry with approximately $4 billion of assets under management.
Driving this consolidation is the fact that limited partners are anxious to shrink their base of investment platform vendors, while the generational change among the industry pioneers that launched investment vehicles 25 years ago has introduced a measure of volatility to the environment.
Like many private equity professionals, Ares sounded a familiar theme: Exiting investments at profitable levels is a relatively easy task, but finding new opportunities to put money to work has become more difficult by roughly the same measure. "Assets are higher on realizations," Michael Arougheti, president of Ares, said in prepared remarks during the call.
"But measure that against increased competition for assets," he added.
The firm is sitting on $18.9 billion of "dry powder" -- that is, capital that it could put to use in investments. The firm said it raised $14 billion in new capital in the last 12 months.
Ares, which went public in April of last year and became the latest alternative asset manager to list its shares, reported disappointing results versus analysts' forecasts. Economimc net income per share came in at 35 cents, short of the 39 cents that analysts projected. It boosted its distribution per unit holders to 25 cents, up a penny from a year ago.