Alternative investment manager Ares SSG is prioritising downside protection before making additions to its portfolio, at a time when global investors’ demand for distressed opportunities in the Asia-Pacific rise to a new level amid the pandemic crisis.
There is “a healthy and strong demand” from investors worldwide to allocate money to emerging markets in Asia, especially to the distressed and special situations space, said Ares SSG’s managing partner and CEO Edwin Wong, during a fireside chat at the Asia PE-VC Summit 2021. “It is clear that the opportunity set is unique in Asia and will not go away anytime soon.”
“The most important thing” amid the global health crisis for Ares SSG – which focuses on credit investment across the Asia Pacific – is downside protection before “adding any more risks to the books,” said Wong. “As a firm, we probably spend 30-40% of our time on risk management versus finding new transactions.”
As of September 2020, the region’s private debt market booked a record $59 billion in assets under management (AUM), marking a growth of 195% in the previous five years. But the Asia-Pacific is still significantly smaller as compared to North America and Europe, which collectively account for 91% of global AUM, shows Preqin data.
Investors are flocking in to build or deepen their credit presence in the region. AustralianSuper, Australia’s largest pension fund with over $225 billion in member assets, announced in July a plan to triple its private credit portfolio to over A$15 billion ($11.1 billion) in the next three years. In June, New York-based Muzinich & Co roped in Singapore bank DBS Group to be an anchor investor in its first Asia Pacific private debt fund, following the fund’s launch roughly one year earlier.
The trend grows bigger with a recent series of fundraising updates, executive hires, and capital commitments involving players from asset managers like Barings, Tanarra Credit Partners, and Fidelity International; to limited partners (LPs) such as South Korea’s Public Officials Benefit Association (POBA), Ontario Teachers’ Pension Plan, and Canadian benefit pension plan OMERS.
Ares SSG, a subsidiary of US-based Ares Management Corporation, is among the latest to raise the stakes in the sector with the final close of its Secured Lending Opportunities Fund III at over $1.6 billion in July. Fund III, which already deployed over a quarter of the committed capital, is twice as big as the $800 million-plus predecessor fund closed in 2017.
As one of Asia’s biggest alternative asset managers, Ares SSG has a team of over 85 professionals across nine local offices, managing approximately $7.5 billion.
While investors are bullish on opportunities in the virus-ridden market, Wong warned that the pandemic also made the restructuring process more difficult. “The storm must clear to some degree, for everyone to agree on a set of projections [around the business to be restructured],” he said.
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