Global fund giant Ares predicts local boom in private equity lending

afr.com:

The head of global fund giant Ares Management’s Australasian unit says he expects direct lending to local companies to double over the next three years as more buy-out funds turn to asset managers for financing.

Ares Management, which has a $50 billion market capitalisation, established a lending presence in Australia in late 2021 and has already deployed about $2.5 billion in the market via 11 deals.

Peter Graf (left) and John Knox of Ares Management.  Louie Douvis

That includes debt capital to fund TPG Capital’s $1.8 billionbuyout of funeral services provider InvoCare, and loans to faith-based payments play Pushpay and New Zealand fuel retailer Gull.

John Knox, the head of Ares in Australia and New Zealand, said the local credit market had been calling out for direct lenders – which provide an alternative to public bond or loan deals, or financing provided by local banks – by directly lending money to buy-out firms.

“This was one area where there was significant opportunity,” Mr Knox told The Australian Financial Review. “Private equity clients would tell us that the direct lending solution was far better for them.”

Peter Graf, Ares’ head of direct lending, said the asset manager was prepared to lend anywhere from $75 million to more than $1 billion per deal. The average annual earnings of the companies in their debt portfolio is about $100 million, with enterprise values of $1.2 billion.

Mr Knox, the former local head of Credit Suisse, said the growing presence of private equity players in Australia made him confident Ares, and other private direct lenders, would increase their share of lending activity.

“When I started doing private equity financing 20 years ago, there were five firms operating, Now there’s 80 and