Ares Management Stock Soars 6.37% Amid Private Credit Concerns

Ares Management's stock surged 6.37% in pre-market trading on May 5, 2025, reflecting a significant uptick in investor interest.

Hedge funds have been increasingly targeting private credit lenders, including Ares Management, due to economic uncertainties and concerns about borrower credit quality. This trend has led to substantial paper profits for short sellers, who have capitalized on the vulnerabilities in the US private credit market.

The International Monetary Fund has raised concerns about the deteriorating credit quality of borrowers, which has not been adequately reflected in loan valuations. This, coupled with ongoing trade tensions and market instability, has adversely affected the stock prices of major lenders like Ares Management.

Market analysts suggest that private credit funds are at risk, especially if a recession strikes, as declining company revenues and cash flows could increase leverage and deplete free cash flow. Despite some optimism about the resilience of business-development companies, the overall outlook remains cautious.

Additionally, the prevalence of payment-in-kind (PIK) loans, which have become a significant component of net investment income for business-development companies, raises questions about the consistency of valuations compared to similar public market loans.