Ares Management raises $8.5bn for asset-backed credit fund amid private markets strain

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Ares $8.5bn asset-backed fund

Highlights

Ares Management raises $8.5bn for its third Pathfinder fund, surpassing its $6.5bn target and including $4bn in recommitted capital.
Private credit inflows from retail and wealthy individuals slow, with Ares restricting withdrawals from semi-liquid funds as share price declines nearly 20% year-to-date.
Ares evaluates risk transfer deals on AI-related data centres as Wall Street banks reach exposure limits, targeting predictable cash flows despite potential overbuilding.

Fundraising momentum and investor demand

As first reported by Financial Times, Ares says the third fund in its Pathfinder family is among the largest closed-end vehicles focused on complex asset-backed debt. The firm says the fund exceeds its $6.5bn target, with the total including $4bn from investors in an earlier Ares fund who recommit capital for another two years.

Joel Holsinger, co-head of Ares' alternative credit business, says the fundraising closes exceptionally quickly even as market conviction remains fragile. The prior Pathfinder fund, which raises $6.6bn in 2023, reports net returns of 16%, adding to investor appetite for the strategy.

The latest raise also supports Ares' broader expansion plans as the firm moves toward its target of $775bn in assets under management by 2028. Earlier this year, Ares announces $8.3bn for its opportunistic credit franchise and another $4bn of commitments for a credit secondaries fund, while executives are now marketing a new senior direct lending fund with a goal of at least $10bn before leverage.

Private credit pressures and AI financing opportunities

Fresh commitments to institutional funds come as retail and wealthy-individual inflows across private credit slow sharply. Ares and several rivals have limited withdrawals from semi-liquid private credit funds as redemption requests surge, and Ares shares have fallen nearly a fifth this year, though they rebound from March lows.

Those earlier market fears center on the potential disruption that AI could cause to private equity-backed software companies, many of which are financed by private credit funds. At the same time, large private investment firms are increasingly lending to AI groups such as Anthropic and OpenAI and helping finance a major build-out of data centre infrastructure.

Holsinger says major Wall Street banks that help fund the rapid expansion in data centres are reaching limits on exposure to individual technology groups and are increasingly seeking to transfer part of that risk. He says Ares is evaluating such significant risk transfer deals as part of its asset-backed finance business, while co-head Kevin Alexander says that even if some overbuilding emerges in AI infrastructure, the credit still offers predictable contractual cash flows.

Our earlier article on Meta’s AI data center build-out covered the company’s $115 million “America’s Workforce Academy,” a fast-track training program aimed at easing skilled-trade shortages tied to data center construction across several U.S. states. We also noted that while AI infrastructure investment is boosting near-term demand for construction and support roles, on-site staffing typically drops sharply once facilities move from build phase to operations.

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