Overview
BofA Securities reaffirmed its Buy rating on Ares Management Corporation after a group investor dinner with the company’s CFO, Jarrod Phillips, on Tuesday evening. The analyst house highlighted that Ares trades at a 1.5‑standard‑deviation valuation discount relative to its five‑year average and that earnings‑per‑share growth remains visible at roughly 20%.
Financial Performance
Ares Management reported first‑quarter 2026 results that fell short of analyst expectations, delivering earnings per share of $1.24 on revenue of $1.27 billion. In the same period the firm announced the final closing of its oversubscribed Pathfinder Fund III, securing $8.5 billion to support its asset‑based finance strategy.
Strategic Initiatives and Growth Drivers
The firm’s organic growth trajectory is expected to continue, driven by larger contributions from its real‑assets platform and its asset‑based finance division. Institutional demand for non‑investment‑grade direct lending remains robust, particularly from sovereign‑wealth funds in the Middle East seeking diversification.
Credit‑quality metrics are projected to plateau in the second half of 2026, with non‑accruals and net‑loss growth stabilising. Private business‑development‑company redemption requests showed a notable quarter‑over‑quarter improvement in the third quarter of 2026.
In the data‑center space, Ares operates a differentiated strategy through a 70‑person investment team focused on urban‑adjacent locations. The team targets high‑teens internal rates of return, with downside cases around 12%, and secures leases exceeding 15 years with investment‑grade tenants that include make‑whole provisions. A large first close for Ares’s inaugural dedicated data‑center drawdown fund is expected this summer.
Deployment opportunities remain broadly attractive across the firm’s businesses, except for U.S. direct lending, which faces muted private‑equity activity following the Iran conflict and software‑as‑a‑service sector turbulence in the first quarter of 2026. Elevated redemptions in retail vehicles have nevertheless driven better returns on larger deals.
BofA noted that Ares could consider acquiring a large private‑equity manager whose flagship funds hold assets under management exceeding $15 billion, a move that would enhance its capital‑markets franchise and distribution capabilities.
Outlook
The analyst firm expects Ares’s strong organic growth to persist, supported by its real‑assets and asset‑based finance divisions, continued sovereign‑wealth‑fund demand, and the upcoming data‑center fund close. Potential strategic acquisitions and the stabilisation of credit‑quality metrics further underpin the positive outlook.