Ares' $671 Billion Case: Why AI, Private Credit and Secondaries Matter Now

Ares' recent weakness looks more like market noise than a broken model

The market is fixated on Ares' latest soft GAAP print. The firm reported $0.13 GAAP net income per share, down from $0.41 in the prior quarter, and NAV fell to $19.59 per share. But management said more than two-thirds of the quarterly mark came from market-driven, not credit-related, losses. That is an important distinction: pressure from spread pricing is not the same thing as a broad collapse in underlying credit quality.

The balance-sheet read also looks intact. Ares came away with record fundraising, including $36 billion raised during the quarter, pushing assets under management to approximately $671 billion. It also retained approximately $6 billion in liquidity and ended the quarter at 1.10x debt-to-equity. In practical terms, there is still enough cash and borrowing capacity to keep deploying capital through a tougher tape.

The more bullish case is forward-looking. Management highlighted improving deployment opportunities across credit, infrastructure and secondaries, while fee-paying assets climbed 17%. That points to a longer fee-growth runway than the market may be giving credit for right now.

Private credit and secondaries still have a credible growth path

The appeal of private credit and secondaries is not branding. It is fee math. Private credit can grow where banks are doing less lending, while private credit is just credit and Ares said it sees improving deployment opportunities across credit. Secondaries exist because capital in private assets is not always easy to move; when one investor needs liquidity and another wants exposure, transactions can happen, helping Ares support address a broad range of liquidity and portfolio management needs.

Why the fee pool can keep expanding

The base is already large and still growing. Private debt stood at about $1.7 trillion in AUM and is expected to exceed $3 trillion by 2028. More capital in the system can mean more borrowers, more loans to underwrite, and more existing positions that can later be bought or sold, giving both primary origination and secondary activity room to feed the same fee engine.

Ares also suggested the competitive landscape has become more attractive. Management said spreads have widened and competition has eased, creating better return potential on new deals. It also pointed to Pathfinder Fund III, which raised $8.5 billion against a $6.5 billion target. That does not guarantee outcomes, but it does show that institutional demand remains strong.

Secondaries can benefit from the same backdrop. As liquidity needs rise and investors look for flexibility, secondary activity can turn seller pressure and changing portfolio needs into more management, advisory, and performance-based opportunities.

Bull case and bear case

Bull case - Institutional investors still appear under-allocated to private credit, leaving room for further capital flows. - Wider spreads and lighter competition may support healthier economics on new deals. - Secondaries could become a steadier fee contributor as the asset class matures.

Bear case - This is still a later-stage credit cycle. Late-cycle excesses in broader credit markets, high-profile leveraged loan defaults in late 2025, and rising use of payment-in-kind toggles in direct lending are real warning signs. - More capital is chasing the same dislocation. More than $100 billion has been raised in distressed and opportunistic funds over the past two years, which could compress returns and make recoveries slower.

If credit quality stays contained, a rougher market may create more feeable activity rather than less.

AI matters only if it improves deployment, margins and monitoring

AI is the least flashy of Ares' cited growth drivers, but it could be one of the more durable operating levers.

How AI could show up in fees

On the earnings call, AI was named alongside credit, infrastructure and secondaries as a growth driver, with management saying it is already being used to AI to improve investment decisions and operating efficiency. The basic logic is straightforward: if routine tasks take less time, deal teams can spend more of that capacity on sourcing, underwriting and monitoring.

That matters because private markets earn money from repeatable judgment, not just from size. If AI helps triage deals faster and improves operating efficiency, it could support better deployment and tighter margins over time.

The real test is credit discipline

AI only matters to investors if it helps protect returns, not just headline productivity. From the available evidence, the clearest near-term read is that the current mark pressure has been mostly market-driven rather than borrower-driven, with management saying more than two-thirds of the quarterly mark stemming from market-driven, not credit-related, losses. If that remains true, AI's value will likely show up indirectly: sharper screening, faster documentation, better portfolio monitoring, and fewer operational bottlenecks.

What would justify a rerating over the next few quarters

The next few quarters should matter more than another round of confidence-building.

Near-term signals

Over the next one to two quarters, watch: - Fee-paying asset growth: does the fee-paying asset climb continue, even while the market digests the last soft GAAP print? - Deployment: do improving deployment opportunities across credit turn into visible activity? - Credit quality: does more than two-thirds of the quarterly mark stemming from market-driven, not credit-related, losses remain a reasonable description of stress, rather than a shift toward broader borrower deterioration?

Higher-impact signals

Over the next two to four quarters, watch: - Secondaries as a fee driver: does the secondary market become more than a long-term theme, as the credit secondaries asset class remains underpenetrated? - Balance-sheet flexibility: can Ares keep using record fundraising and a strong liquidity position to move through dislocation instead of waiting it out?

What would break the case: rising borrower stress, more PIK toggles in direct lending, worsening defaults, or secondaries that stay interesting in theory but fail to become a real fee driver. If those signals remain controlled, the current discount could narrow as investors focus more on durable fee compounding than on one weak quarter.