What We’ve Heard & What Comes Next

By Raj Dhanda

March 2023

Here at Ares, we are celebrating several significant milestones. Last year, Ares Management marked its 25th anniversary of delivering private market solutions to our clients. Next year, Ares Capital Corporation (ARCC), a market-leading publicly traded BDC and one of the largest direct lenders in the U.S., will celebrate its 20th birthday, making it one of the longest running funds of its kind. At the heart of ARCC was the idea that investing in private assets should not be limited to institutional investors. Rather all types of investors, including individual investors, could benefit from the differentiated returns that non-bank financing to middle market companies could offer portfolios.

**Raj Dhanda**
Global Head of Wealth Management

As Ares’ mission to broaden investor access to investments in private markets grew, so too did the needs of individual investors. 10 years ago, we launched the first ever non-traded diversified NAV REIT – a new structure that would allow individual investors the opportunity to access institutional-quality real estate with lower correlation to public equity and public fixed income markets. The NAV REIT structure served as a complement to publicly traded ones, and a catalyst for Ares’ expanding suite of non-traded, perpetual life solutions spanning real assets, private equity and private credit.

And lastly, one anniversary I’m particularly proud of, in 2022, we celebrated one year of operations for Ares Wealth Management Solutions (“AWMS”), today one of most resourced distribution and client service teams in the alternatives industry focused on bringing private markets education and innovative, purpose-built solutions to the wealth channel.

So, what have we learned from more than a year of conversations with our community of over 100,000 financial advisors? My reflections on what we’ve heard from them—and what we’re focused on in the year ahead—are below.

Advisors continue to move away from a traditional portfolio of public equities and public fixed income in favor of greater exposure to private market investments.

In fact, according to Cerulli, an independent industry market research and consulting firm, 69% advisors surveyed report reducing exposure to public equities and public fixed income as a key goal for their private market allocations¹. This comes as no surprise given the significant losses in both public equity and public bond markets through the present that has created persistent challenges for clients’ financial plans. In addition to overall reducing their allocations to public equities and public fixed income, advisors and their clients are attracted by the opportunity to dampen volatility, incorporate greater downside protection and build diversification² into their portfolios with private market investments. With continued uncertainty in equity markets, and volatility in credit markets amid rising interest rates, the case for incorporating private market solutions as a mitigant appears strong as ever.

Advisor-Reported Goals of Alternative Investment Allocations, 2022

A key reason that advisors are using alternative investments is to reduce exposure to public markets (69%), followed by volatility dampening/downside risk protections (66%) and income generation (59%)³.

Goal	% of Advisors
Reduce exposure to public markets	69%
Volatility dampening/downside risk protection	66%
Income generation	59%
Portfolio diversification	52%
Growth/enhanced return opportunity	42%
Inflation hedge	31%
Demonstrate own advisory practice value proposition	22%
Client requests	19%

Sources: Cerulli Associates, in partnership with Blue Vault.
Analyst note: Advisors were asked to select all choices that applied.

Advisors are not only looking for private market exposure for their clients’ portfolios, they’re looking for a partner to help them navigate the opportunity.

At Ares, we believe that private market investments can and should play an important role in managing both investment objectives and broader financial planning—including managing the behavioral biases that often erode wealth generation. Investors can be prone to panic, particularly in times of uncertainty and market dislocation. Financial advisors appear to appreciate the power of private markets investments in helping to reinforce the discipline of time in the market, NOT market timing.

But advisors tell us that more education and support surrounding these asset classes is needed. And that feedback underpins our mission to do everything we can to help advisors and their clients understand what those asset classes can bring to a total portfolio and how they can be used optimally in portfolios.

AWMS is focused on meeting these needs by providing purpose-built investment solutions, educational resources and access to a collaborative and supportive team.

We believe advisors increasingly need choice around structure and format to best serve the diverse needs of their clients, and our team is dedicated to curating purpose-built investment solutions across private equity, credit and real assets to do just that. But advisors also need support in order to incorporate these solutions into their practices. To that end, we are building out AccessAres, an educational platform designed to harness Ares’ experience, market views and data and bring it all to bear as a resource for advisors. As part of the AccessAres experience, we have formed an in-house team of asset allocation specialists who, in addition to delivering research and educational insights, are building analytical tools that we believe can help drive portfolio guidance and suitable allocation decisions.

We take incredible pride in sharing our unique culture of collaboration and transparency, together with our cycle-tested approach to private markets investing with advisors and their clients. What we are building is something that we hope can meaningfully contribute to how you think about private markets and how you think about creating predictable, long-term wealth.

Cerulli Associates, U.S. Alternative Investments 2022.

Diversification does not assure profit or protect against loss.

Sources: Cerulli Associates, in partnership with Blue Vault. Analyst note: Advisors were asked to select all choices that applied.

DISCLAIMER

The views expressed in this document are those of the author as of the date of the document and do not necessarily reflect the views of Ares Management Corporation (“Ares Corp,” together with Ares Management LLC or any of its affiliated entities “Ares”). The views are provided for informational purposes only, are not meant as investment advice, and are subject to change. Moreover, while this document expresses views as to certain investment opportunities and asset classes, Ares may undertake investment activities on behalf of one or more investment mandates inconsistent with such views subject to the requirements and objectives of the particular mandate.

The investments and asset classes mentioned in this document may not be suitable for all investors. This document does not provide tailored investment advice and is primarily for intended distribution to institutional investors and market professionals. Such investments can be highly illiquid, are speculative and may not be suitable for all investors. Investing in such investments is only intended for experienced and sophisticated investors who are willing to bear the high economic risks associated with such an investment. Investors should carefully review and consider potential risks as well as their specific investment objectives and experience, time horizon, risk tolerance, and financial situation before making any investment decisions. Nothing contained in these materials constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision.

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Insights from Ares’ Global Head of Wealth Management