Teiki Benveniste

Investing in global credit strategies can offer investors attractive go-forward returns as interest rates level off and the default environment is proving better than anticipated, according to leading global alternative investment manager, Ares Management Corporation (“Ares”).

Head of Ares Wealth Management Solutions in Australia, Teiki Benveniste, said investors should look past the negative headlines, with credit markets providing opportunities for investors.

“After three years of tumultuous market conditions, with traditional fixed income suffering historical losses and volatility alongside credit markets facing wider spreads and rising defaults, we are seeing increased pockets of opportunities in credit markets,” said Mr. Benveniste.

“We believe income-oriented solutions constructed around senior, higher quality segments of the corporate debt and alternative credit markets are able to hit the ‘sweet spot’ of credit, delivering higher yields and minimising volatility.”

Ares’ demonstrated experience actively managing global credit assets has been supported by the performance of the Ares Global Credit Income Fund (‘AGCIF’ ‘the Fund’), which recently surpassed its three-year track record.

The strategy was launched with the goal of delivering higher yield, diversification, and downside protection to investors. With a core holding in senior and secured, floating rate credit, the Fund has been significantly less sensitive to rising interest rates.

Against the backdrop of a rapidly changing and volatile market environment, the Fund has outperformed traditional fixed income markets, returning 9.7% for the last twelve months ended 30 September 2023 and 5.1% p.a. since its inception on 1 May 2020.1

“Low yields and long duration have driven low and volatile returns in traditional fixed income strategies amid concerns around inflation, recession and geopolitical conflict,” said Mr. Benveniste. “The track record of AGCIF demonstrates the benefit of an alternative income-oriented solution that offers a defensive source of yield for investors.”

“The combination of higher yields, cheaper asset prices and wider spreads in an environment where bouts of volatility have become shorter and more frequent can present meaningful alpha-generating opportunities.

“As the era of low sovereign rates across the globe comes to an end, we believe flexible investment solutions anchored in floating rate credit should benefit from the go-forward market environment and should serve as the new ballast within investor portfolios.”

Actively managing tail risks

While the current entry point looks attractive, Ares recognises that increased tail risks need to be closely monitored. Slower growth and higher rates will likely drive increased ratings downgrades and, to a lesser extent, defaults, leading to heightened volatility and dispersion.

Loan defaults continue to rise off historical lows, but Ares believes default rates will not spike and should remain manageable over the next 12 months. Credit selection comes to the fore in this environment, and despite an increase in defaults across credit markets, AGCIF has experienced a 0% default rate since inception.

“Active credit selection will be a key driver in returns in an environment where default rates in credit are expected to revert to the historical mean,” said Mr. Benveniste. “However, and importantly, we do not expect [the worst case scenario] to materialise.

“In this rapidly evolving market, nimble and active portfolio management will remain key to capitalising on intermittent bouts of volatility, as the attractive entry points this environment can create are usually only short-lived,” said Mr. Benveniste.

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Teiki Benveniste

The Ares Global Credit Income Fund (the “Fund”) has been added to four investment platforms since March, bringing the number of platforms on which the Fund is available to six.

It was already available for investors on AMP North and BT Panorama and over the past two months has been added to HUB24, Praemium, Macquarie Wrap and Netwealth.

The Fund is managed by Ares Australia Management, the strategic joint venture between Ares Management Corporation (Ares), a leading global alternative investment manager, and the Australian-based Fidante Partners, a global investment management and distribution business.

Since its inception on 1 May 2020, the Fund has returned 6.4% p.a.* net of fees. The Fund aims to provide stable monthly income with a focus on downside protection across market cycles by investing in a diversified portfolio of carefully selected corporate and structured credit assets, including U.S. and European corporate bonds, bank loans and alternative credit securities.

Head of Ares Australia Management Teiki Benveniste said, “In the current environment, our flexible approach has allowed the portfolio to be anchored to floating rate instruments, benefiting from higher interest payments, while experiencing lower volatility than traditional fixed income asset classes. We believe we are now in a strong position to capitalise on attractive relative value opportunities in fixed rate credit instruments, as bonds currently trade at significant discounts to their nominal value, without taking on significant additional duration risk.”

Benveniste continued, “Ares is committed to facilitating investors’ access to credit asset classes and strategies that enable greater portfolio diversification with low interest rate duration risk and that have generally been offered only to institutional clients. The Fund’s placement on six platforms is the fruit of this effort and broadens the reach of the Fund to even more investors.”

The Fund received a ‘Recommended’ rating from investment research provider Lonsec earlier this year and was awarded the same rating from Zenith Investment Partners in 2021.

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Teiki Benveniste

The Ares Global Credit Income Fund (the “Fund”) has received a ‘Recommended’ rating from investment research provider, Lonsec. The Fund was awarded the same rating from Zenith Investment Partners in 2021.

The Fund is managed by Ares Australia Management, a strategic joint venture between Ares Management Corporation (“Ares”), a leading global alternative investment manager, and the Australian-based Fidante Partners, a global investment management and distribution business.

The Fund aims to provide investors attractive current income through stable monthly distributions while providing downside protection across market cycles. Based on the market environment and relative value opportunities, the Fund is dynamically invested across a diversified portfolio of carefully selected corporate and structured credit assets, including U.S. and European corporate bonds, bank loans and alternative credit securities. The Fund seeks to avoid riskier asset classes, such as equities, and to minimise exposure to the more stressed segments of the credit market.

Supporting the rating, Lonsec cited Ares’ 20+ years of experience managing liquid and private credit strategies, its collaborative, integrated and highly resourced Global Liquid Credit and Alternative Credit teams of 80+ investment professionals and its strong fundamental credit process complemented by sophisticated quantitative tools.

Since its inception on 1 May 2020, the Fund has returned 8.65% per annum after fees. Its internal objective is to outperform the Bloomberg Ausbond Bank Bill Index by 3% to 4% (gross of fees) over a three-year period.

While the traditional fixed income markets continue to be challenged, Head of Ares Australia Management, Teiki Benveniste, remains constructive on the 2022 outlook for the Fund’s primary asset classes in scope. Benveniste noted “In the current environment, traditional fixed income is challenged by negative real yields, low current income generation and high levels of duration, making negative returns and bouts of volatility increasingly likely amid rising inflation concerns. We believe certain higher beta, floating rate instruments, specifically bank loans and CLO debt securities, screen attractive from a relative value perspective as they provide high levels of current income and low duration of less than one year.”

Benveniste further commented “Looking ahead to 2022, we expect robust retail and institutional demand, strong fundamentals and improving credit metrics, low default expectations and supportive capital markets to continue to be tailwinds for bank loans and CLO debt securities.”

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Teiki Benveniste

The Ares Global Credit Income Fund (the “Fund”) has capped its first year of availability to Australian investors with 12.13%^[1] returns net of fees and an initial ‘Recommended’ rating from investment research provider Zenith Investment Partners.

The Fund is the first managed by Ares Australia Management, the strategic joint venture between Ares Management Corporation (Ares), a leading global alternative investment manager, and the Australian-based Fidante Partners, a global investment management and distribution business.

The Fund aims to provide stable monthly income with a focus on downside protection across market cycles by investing in a diversified portfolio of carefully selected corporate and structured credit assets, including U.S. and European corporate bonds, bank loans and alternative credit markets. The Fund seeks to avoid riskier asset classes, such as equities, and to minimise exposure to the more stressed segments of the credit market. In its first year to 3 May 2021 the Fund returned 12.13% net of fees with total income for the period reaching 10.59%.

Head of Ares Australia Management, Teiki Benveniste said, “This rating underscores our belief that the ‘sweet spot of credit’, characterised by high-levels of current income and low interest rate duration risk, can offer a solution to Australian investors in search of higher income and diversification.”

Zenith commenced coverage with a Recommended rating as a result of the Fund’s high-quality and well-resourced investment team, structured investment approach, and demonstrated ability to identify relative value opportunities across credit asset classes allowing the Fund to outperform through a broad range of credit markets. The Fund has been included in the International Fixed Interest High Income sector due to the Fund’s investment universe and its higher income focus.

“The Fund’s strategy of investing in high-quality credit instruments is geared toward capital preservation through fundamental credit selection and a flexible approach to capitalise on the most attractive relative value opportunities,” said Samantha Milner, Partner, Portfolio Manager and Head of U.S. Liquid Credit Research in the Ares Credit Group. “We believe that this approach offers greater opportunities for current income and yield versus traditional fixed income and passive strategies, while reducing volatility and default risk through downside protection offered by senior, and often secured, positions in corporate bonds, loans and asset backed securities.”

———

[1] As at 3 May 2021. Past performance is not a reliable indicator of future performance.

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Teiki Benveniste

Ares Australia Management (“AAM”), the strategic joint venture between Ares Management Corporation (“Ares”) (NYSE: ARES), a leading global alternative investment manager, and Fidante Partners Limited (“Fidante Partners”), is launching its second Australian product, the Ares Diversified Credit Fund (“Fund”).

The unlisted open-ended Fund presents a novel investment strategy to the Australian managed fund space and provides investors with access to Ares’ leading global credit platform through a vehicle that allows for daily inbound and quarterly outbound liquidity at net asset value (“NAV”). The Fund is designed to offer exposure to private and public credit assets and aims to deliver yield premiums and additional downside protection relative to traditional fixed income. It primarily invests in a portfolio of directly originated loans, syndicated loans, corporate bonds, asset-backed securities, commercial real estate loans and other types of credit instruments. Unlike other products in the market, the structure of the Fund allows for the pass through of all components of income, including the origination fees earned on directly originated loans for the benefit of the Fund’s investors.

AAM is proposing to launch an Initial Offer (Offer) on 16 November to seed the Fund. As set forth in the Fund’s Information Memorandum, by participating in the Offer, seed investors will receive additional loyalty units equivalent to 1% of their initial investment amount, to the extent they hold their initial units for one year. These additional loyalty units will be provided at no additional cost to investors. Once the Offer closes, the Fund will then be open for daily applications.

“At its core, the Fund provides access to Ares’ scaled credit platform, including its differentiated self-origination capabilities,” said Teiki Benveniste, Head of Ares Australia Management. “We believe that Ares’ sourcing advantages and deep credit capabilities, alongside the Fund’s structure which allows for inbound and outbound liquidity at NAV, provides Australian investors with a distinct product to meet their income and liquidity needs. Importantly, the Fund’s investors will be able to benefit from the full economics of its investments, including any income and origination fees. We believe this further distinguishes our product from other offerings in the Australian market today.”

“The Fund benefits from the full scope and scale of the Ares platform in allocating capital across the global credit markets in search of the best relative value opportunities,” said Mitch Goldstein, Partner and Co-Head of the Ares Credit Group, and a lead portfolio manager for the Fund. “We believe that Ares’ high underwriting standards, as demonstrated by our long-term track record of low defaults and strong returns across the credit platform, as well as portfolio diversification across issuers, asset classes and geographies, provides for compelling performance with meaningful downside protection.”

“As a pioneer in private credit globally, Ares has developed a trusted reputation of investing through market cycles,” said John Knox, Australia and New Zealand Chairman of Ares SSG. “Ares is well-regarded for its ability to directly originate, structure and manage credit investments across the full spectrum of private and public credit strategies.”

Fidante Partners Global Head, John Burke said: “The AAM joint venture has launched this second product to address the increasing market opportunity for global credit and to better meet the needs of Australian investors in today’s low rate environment. Everything we do centres on providing our retail and institutional customers with attractive fund management solutions and breaking down barriers to asset classes that are typically difficult to access.”

The Fund is one of several products that AAM plans to launch over the next two years. AAM’s first product, the Ares Global Credit Income Fund, was launched in May 2020.

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AAM Head Teiki Benveniste said the Fund had been developed to meet the strong demand from Australian investors for strategies that aim to deliver high levels of income with a focus on capital preservation while lowering concentration risks in their investment portfolios.

“In this volatile, uncertain and low interest rate environment, investors are focused on finding reliable sources of higher income without risking severe capital losses and with better risk diversification than traditional investments in their portfolios. In Australia, a lot of investors looking for higher levels of income have historically invested in Australian bank equity or hybrid securities. Fixed income investments also have significant exposure to banks and structured products backed by local mortgages. The Ares Global Credit Income Fund seeks to meet this need for higher income and diversification in a different way.”

The Fund is an actively-managed dynamic and flexible strategy designed for shifting markets to generate steady income with a focus on capital preservation. Ares has delivered compelling risk-adjusted returns to investors for more than two decades through different cycles, with a demonstrated record of outperforming in times of market dislocation. Ares’ U.S. and London-based senior portfolio managers average more than 20 years of investing experience and have a long history of attractive performance in underwriting and managing credit across the Fund’s investable asset classes: corporate bonds, bank loans and asset backed securities.

The Fund has a target distribution of 3% to 4% per annum paid monthly. Seeking to generate stable income, the Fund expects to invest in a highly diversified portfolio of carefully selected credit issuers.

“Ares Australia Management’s ambition is to become one of Australia’s leading credit and alternative asset managers,” added Mr Benveniste. “With approximately 1,200 employees across the world and US$149 billion1 of assets under management, Ares Management Corporation has a leading and award winning investment platform that originates and manages investments across the full credit spectrum including corporate bonds, bank loans, private direct lending and asset-backed finance, as well as other alternative asset classes such as private equity, real estate and infrastructure. AAM will provide Australian investors access to these investment solutions to meet their investment needs.”

The Ares Global Credit Income Fund is the first of several products that AAM expects to launch in Australia over the next two years.

Looking specifically at the opportunity set in credit, over US$110 billion of Ares’ total AUM of US$149 billion is managed across the full credit spectrum.

David Sachs, Partner in Ares Management Corporation’s Strategy and Relationship Management Group said: “At Ares, a continued focus on capital preservation is paramount, and with local market presence in the United States and Europe, I believe Ares is well-positioned to capitalise on the convergence of the traditional and non-traditional credit markets.

“There is a US$4 trillion opportunity set across the U.S. and European corporate bond, bank loan and alternative credit markets. With our multi-asset framework designed to capture real-time shifts in relative value across asset classes, market dislocations, and idiosyncratic credit opportunities, we focus on assets that offer enhanced income and shorter duration.

“Our time-tested investment process with a focus on capital preservation has also delivered a low historical default rate. In corporate bonds and bank loans, Ares’ strategies have shown resilience in times of stress versus the broader market,” Mr Sachs added.

Challenger Funds Management Chief Executive Nick Hamilton said: “The joint venture with Ares is designed to bring Australian investors access to one of the world’s leading alternative credit managers. With the disruption seen globally from COVID-19, there is no more important time for the depth and skill of Ares who invest across the credit universe, an asset class that will continue to grow in importance for investors in Australia. The disruption across markets today is bringing the Ares investment team opportunities and the launch of the Ares Global Credit Income Fund is ideally timed.”

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As the new Head of AAM, Mr Benveniste will be based in Sydney and will be responsible for building strong investor interest in the specialist asset manager and for increasing assets under management as the joint venture launches a range of investment strategies. Mr Benveniste will also serve as a liaison with Fidante Partners, which will provide product distribution, local fund reporting and back office administration.

Mr Benveniste joins AAM after spending the last six and a half years at Macquarie Group, most recently as the lead Senior Investment Specialist for Macquarie Fixed Income in Australia, where he managed a team of investment and product specialists covering both retail and institutional investors. Prior to this, he was based in London for almost seven years at Société Générale where he held trading, credit analyst and sales roles for loan syndications across Europe, the Middle East and Africa. He has a Masters in Science in Finance and a Masters in Management from the French EDHEC Business School.

“Ares Australia Management will provide local investors and the country’s superannuation system with access to specialist investment expertise in credit and other alternative investments, which will play an important role in delivering high-quality diversified returns for investors’ portfolios,” said Mr Benveniste. “With persistently low global interest rates, investors need to find alternative ways to generate attractive income and to achieve targeted returns. Ares has a long track record of delivering high-quality investment solutions across a range of alternative investment strategies with a focus on managing downside risk with a disciplined and selective investment approach.”

AAM expects to launch its first credit fund in the coming months with further strategies to follow.

David Sachs, Partner of Ares Management Corporation said: “We are delighted to welcome Teiki to lead Ares Australia Management. We believe that his broad experience in fixed income investing in Australia and Europe positions him as an excellent leader to build investor interest in the funds and investment strategies of Ares within Australia and New Zealand and to seize the significant opportunities available in the region’s market.”

Challenger Funds Management Chief Executive Nick Hamilton said: “We are very pleased to have such a high-calibre and experienced professional in Teiki to head our efforts at AAM. Everything we do is centered on providing our retail and institutional customers with attractive fund management solutions.

This joint venture demonstrates our ability to attract leading investment managers globally and reach halfway around the world to bring a leading fund manager like Ares with high-quality products to our market.”

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