Despite stubbornly high inflation, prompting fears that the Fed will hike too much and send the economy into a tailspin, Ares Management's Chief Executive Officer Michael Arougheti is not too concerned about credit quality within his $334 billion portfolio.
He says that companies have built up a "pretty substantial war chest of liquidity," thanks, in part to the amount of stimulus in the system and the amount of time companies have had to prepare.
Arougeti is not too phased by the inflation picture in the U.S. either, noting that while higher prices are present, they've shifted from the cost of goods to the cost of labor, making the impact more prominent for certain sectors at certain times.
"It's been a bit easier to navigate in the sense that there's not one sector that's getting consistently challenged by the current environment," he said in an exclusive interview for the Delivering Alpha Newsletter.
Even private equity, which has been a tough spot within the alternatives world this year, seems to be on the up, according to Arougheti. As he describes it, the 2022 deals environment has comprised the cost of financing going up, the availability of financing going down, and rates are rising, putting pressure on the discount rate, the markets have paused to try to evaluate at which price transactions will clear.
Arougheti said that the whole process can take about six to 12 months to readjust, noting, "we're already seeing the pipeline start to build into the end of next year. So I've been encouraged by that from an activity and deployment level."
The alternative-assets manager, known largely for its $202 billion credit portfolio, is among the best-performers in the industry, with shares down just a third as much as the S&P 500. Part of that has been the makeup of the firm's assets: allocators seeking to diversify through Ares' floating-rate credit or real assets, which can serve as an inflation hedge.
"It's somewhat counter-cyclical," he said. "So when the markets get challenged, that's when our investment opportunity becomes the most attractive."
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