Ares Capital Is Altering Its Portfolio for Higher Yields
Building its portfolio
As of June 30, 2015, Ares Capital (ARCC) had a diversified portfolio totaling $8.6 billion at fair value. It consists of investments in 207 portfolio companies. The company made a total of $820 million in new investment commitments in 2Q15. Based on the initial investment amount, the company’s weighted average yield stood at 9.5%. Ares Capital’s exits, in terms of repayment, selling, or other, amounted to $783 million during the second quarter. The company made an average 8.3% on the investments it exited.
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Ares Capital continues to invest in second lien loans to either known or big companies in order to generate higher yields. The company is building its portfolio by leveraging the strength of its origination platform and its significant capital base.
Funding existing businesses
Ares Capital benefits from the size and scale of its operations. The company made almost 60% of its new investments in existing portfolio companies. The strong existing relationships with these companies puts Ares Capital in a good position to continue providing them with capital support as they grow or change ownership. It does lead to some portfolio concentration, however, but it allows the company to grow with its strongest portfolio companies and to avoid some aggressive transactions.
Assets managed by others players
Here are some of the firm’s peers in investment management that have considerable assets under management:
- The Carlyle Group (CG) – $193 billion
- KKR & Co. (KKR) – $98 billion
- BlackRock (BLK) – $4.72 trillion
- Apollo Global Management (APO) – $163 billion
Together, these companies form 1.36% of the Financial Select Sector SPDR Fund (XLF).