Ares expects to secure $3.5bn in Pathfinder Fund II’s first close

A key feature of the Pathfinder strategy is its social impact pledge. Inclusive of Fund II’s first close, the platform will have more than $10.5bn of capital 'designated with this charitable tie-in,' CEO Michael Arougheti says.

Ares Management expects a second flagship Pathfinder offering to raise most of its $5 billion target in an initial close this month.

“We’ve accepted subscriptions to date and anticipate through May a total first close of approximately $3.5 billion,” CEO Michael Arougheti said in the firm’s Q1 earnings call. The amount includes $1.8 billion collected as of the end of March.

“With the robust demand, we expect commitments to this fund to easily exceed that of its predecessor, which totaled $3.7 billion,” Arougheti said. “We’re targeting a final close later this year.”

Ares Pathfinder Fund II, part of a $45 billion-plus fundraising campaign launched by Ares last year, was recently rolled out, Buyouts reported. With $3.5 billion in the bank, the vehicle would already be 70 percent of the way to its goal.

Arougheti attributed the rapid fundraising pace to a strong LP appetite for private debt at a time of economic uncertainty and volatility.

“I would say, generally speaking, all things private credit are being very well received, not surprisingly given the defensive positioning of the asset class, the benefit from rising interest rates, and the ability to deploy more actively in a lower transaction environment,” he said.

The Pathfinder strategy, managed by Ares Credit Group’s alternative credit platform, aims to produce income and long-term capital appreciation through flexible investing in asset-based opportunities. The focus is on collateralized investments in large, diversed portfolios of assets that generate predictable and contractual cashflows across cycles.

Money for charity

A key feature of Ares Pathfinder Fund I is its social impact pledge, with Ares committing to donate at least 10 percent of the vehicle’s carried interest profits to global health and education charities.

In the earnings call, Arougheti confirmed that Fund II would take the same approach. The strategy’s perpetual capital pool, Ares Pathfinder Core Fund, is also committing to donate 5 percent of its incentive fee, he said. Contributions are split equally between the investment team and the Los Angeles firm.

Inclusive of Fund II’s first close, Arougheti said, the alternative credit platform will have more than $10.5 billion of capital “designated with this charitable tie-in.”

Performance has so far generated about $10 million for potential donations. While no contributions have been made as yet, health and education charities that Ares has highlighted in its recent literature include Khan Academy, a provider of multilingual education content, and RIP Medical Debt, an acquirer of household medical debt.

Ares raised $16 billion in the first quarter, more than two-thirds of which was accounted for by a range of credit offerings. The period was also notable for the official unveiling of a seventh flagship buyout fund.

The target for Ares Corporate Opportunities Fund VII remains undisclosed. In the past, however, Ares has typically upsized successor pools by about 20 percent to 40 percent. Using this as the measure, the flagship could shoot for roughly $7 billion to $8 billion, Buyouts reported last year.