Kipp deVeer – Scaling for Private Wealth Globally in Credit (Private Wealth 5, EP.449)

Summary

Capital Allocators – Inside the Institutional Investment Industry Episode: Kipp deVeer – Scaling for Private Wealth Globally in Credit (Private Wealth 5, EP.449)
Host: Ted Seides
Guest: Raj Dhanda, Co-President of Ares Management
Release Date: June 2, 2025

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Introduction

In the fifth episode of the "Private Wealth" mini-series, Ted Seides engages in an insightful conversation with Raj Dhanda, Co-President of Ares Management. This episode delves into Ares Management's strategic approach to scaling its credit-focused offerings within the private wealth sector globally. The discussion touches upon capital formation, distribution strategies, global expansion, and the nuanced challenges of building brand recognition in a competitive landscape.

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Ares Management: An Overview

Timestamp: [08:46]

Raj Dhanda begins by providing an update on Ares Management's growth trajectory:

"Firm continues to grow. We're about 500 billion of AUM today, still dominated by the credit business, but we're focused on growth in a lot of the other areas." ([08:08])

Ares Management maintains a diversified portfolio spanning credit, private equity, real assets, and infrastructure, with recent acquisitions bolstering their global presence, particularly in Japan.

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Scaling in the Private Wealth Channel

Timestamp: [08:46] – [17:38]

Raj elaborates on Ares' strategic move into the private wealth channel:

"We've started focusing six or seven years ago and frankly did a couple of things early. Some good, some not so good..." ([08:57])

The acquisition of Black Creek during the COVID-19 pandemic was pivotal, doubling the salesforce and providing immediate access to a robust retail and wholesaling team. This move was instrumental in challenging market leaders like Blackstone by enhancing Ares' market share from initial dominance by single players to a diversified leadership:

"Now there are four or five firms, including Blackstone and Ares, that have probably 30 or 40% market share at the top of the stack." ([12:33])

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Distribution Strategies and Team Structure

Timestamp: [12:33] – [22:13]

Ares Management employs a diverse and expansive distribution team, encompassing both internal and external wholesalers. This team is crucial in managing smaller check sizes typical of the wealth channel, ensuring efficient client servicing and capital deployment.

Raj emphasizes the importance of metrics in measuring the salesforce's effectiveness:

"We're going to the right people with the right things. Because the death of a salesforce is that you're deploying your sales force with clients in regards to products they're not interested in." ([14:19])

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Investment Themes and Product Offerings

Timestamp: [20:52] – [25:19]

Ares Management structures its offerings around three primary investment themes:

1. Durable Income: Focused on private credit believed to be less volatile than public market credit, delivering premium yields.
2. Diversified Private Equity: Providing access to private equity strategies, including secondaries and primary investments.
3. Tax-Advantaged Real Assets: Encompassing REITs and infrastructure funds.

Raj discusses how these themes cater specifically to the wealth channel's needs, emphasizing diversification and risk management:

"The stock goes down by more and the stock goes up. They love the semi-liquid product that has very little correlation and not a lot of volatility..." ([15:37])

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Global Expansion: Europe and Asia

Timestamp: [32:43] – [34:13]

Ares Management has made significant strides in European markets through the acquisition of GCP, enhancing their presence in Japanese real estate. The firm anticipates substantial growth in Asia, attributing it to the increasing awareness and demand for alternative investments akin to those available in North America.

"Launching some of these income products in Europe was pretty eye-opening for us because we attracted a lot more capital than we expected." ([32:53])

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Managing Capital Flows and Underwriting Discipline

Timestamp: [34:28] – [36:55]

Raj addresses the challenges of handling large, pro-cyclical capital inflows:

"The money has to get to work immediately, particularly in the income strategies. It's inherently pro-cyclical money." ([34:28])

To maintain underwriting discipline amidst rapid growth, Ares ensures a balanced deployment of capital across various structures, avoiding over-reliance on any single pro-cyclical investment vehicle.

"We have a balanced roster of stuff to deploy, we're not under so much pressure to deploy because of the balance of capital that I feel comfortable with how we're set up." ([36:01])

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Building and Maintaining Brand Recognition

Timestamp: [27:45] – [29:54]

Given the crowded market with established players like Blackstone and KKR, Ares Management prioritizes building a strong brand presence. This involves consistent messaging across all levels of the organization and leveraging senior leadership to forge meaningful relationships with financial advisors and institutions.

"We're trying to make sure at the top of AWMS areas, wealth management solutions, there's the consistent view of what we stand for, what differentiates us..." ([29:26])

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Future Outlook and Strategic Focus

Timestamp: [41:35] – [42:19]

Looking ahead, Ares Management aims to continue its growth by enhancing its existing asset classes and exploring new opportunities in real assets and private equity, particularly in Asia. The firm remains committed to maintaining high performance standards and retaining top talent to sustain its competitive edge.

"At Ares, the platform is, for the time being, fully built. We feel like we're in all the asset classes on the alternative side that we need to be to be of the most value to clients..." ([41:35])

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Personal Insights from Raj Dhanda

Timestamp: [39:27] – [40:40]

Beyond professional endeavors, Raj shares personal reflections:

• First Paid Job: "I was a golf caddy... I learned how to talk to some of these old rich guys who liked to play golf." ([39:27])
• Life Achievements: Expresses gratitude for personal and professional accomplishments, highlighting a fulfilling family life and career.
• Future Aspirations: Focused on balancing continued professional engagement with personal passions post the next five years.

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Conclusion

Raj Dhanda's conversation with Ted Seides offers a comprehensive look into Ares Management's strategic initiatives within the private wealth channel. From scaling operations and expanding globally to maintaining underwriting discipline and building a robust brand, Ares Management exemplifies a thoughtful approach to capturing and sustaining growth in the competitive landscape of alternative investments.

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Notable Quotes:

• "We've started focusing six or seven years ago and frankly did a couple of things early. Some good, some not so good..." — Raj Dhanda ([08:57])
• "The death of a salesforce is that you're deploying your sales force with clients in regards to products they're not interested in." — Raj Dhanda ([14:19])
• "We're trying to make sure... there's the consistent view of what we stand for, what differentiates us..." — Raj Dhanda ([29:26])
• "At Ares, the platform is, for the time being, fully built. We feel like we're in all the asset classes..." — Raj Dhanda ([41:35])

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For more insights and detailed discussions from industry leaders, visit capitalallocators.com.

Transcript

[Ted Seides]

Capital Allocators is brought to you by my friends at WCM Investment Management. To outperform the markets, you have to do something differently from others. In my 30 something years investing in managers, there may be no one I've come across who does that as clearly and as well as wcm. I've seen it up close. As an investor in their international growth strategy for the last five years, WCM is a global equity investment manager majority owned by its employees. They believe that being based on the west coast, away from the influence of Wall street groupthink provides them with the freedom to live out their investment team's core values, think different and get better as advocates of integrating culture research into the investment process and advancing wide moat investing. With the concept of moat trajectory, WCM has delivered differentiated returns while building concentrated portfolios designed to stand out from the crowd. WCM is committed to defying the status qu by dismantling outdated practices, believing in the extraordinary capabilities of its people, and fostering optimism to inspire each individual to become the best version of themselves. To learn more about WCM, visit their [e-mail] and tune into this slot on the show to hear more about WCM all year long.

[WCM Investment Management]

This testimonial is being provided by Ted Seides and Capital Allocators who have been compensated a flat fee by wcm. This payment was made in connection with Capital Allocators testimonial and production of podcasts and is not depend on the success or level of business generated. The opinions expressed are solely those of Capital Allocators and may not reflect the opinions of others. Investing involves risk, including the possible loss of principle. Past performance is not indicative of future results. Please visit wcminvest.com for WCM's ADV and further information.

[Ted Seides]

Capital Allocators is also brought to you by Vesto. If you're managing a lot of bank accounts or cash across multiple entities, listen to this. I want to tell you about a product called Vesto. Vesto is a Treasury management platform that allows you to connect and view all your banking relationships on one screen. If you're juggling cash across banks, entities or even countries, you know how time consuming it is to manually log into each account just to get an accurate picture of your finances. It's inefficient, error prone and wastes time. With Vesto, you can replace bank portals and spreadsheets. Get one real time view of all your financial accounts in one place. Head over to vesto.com, that's V-E-S-T-O.com and mention capital Allocators to get a call with the founder.

[Kip Devere]

Better.

[Ted Seides]

Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their.

[Kip Devere]

Time and their capital.

[Ted Seides]

You can join our mailing list and access Premium [e-mail] All opinions expressed by Ted and Podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast. Thirty years ago, institutional investors held most of their assets in stocks and bonds. David Swensen led a movement to an approach to portfolio management that broadened the asset mix to alternative investments, including hedge funds, private equity, venture capital and real assets. These days, almost every institutional portfolio incorporates significant allocations to alternatives to produce better outcomes with similar risks or similar outcomes with lower risk. However, capital in the hands of individuals has not yet followed suit. Private wealth portfolios, particularly the so called mass affluent, typically hold only 2 to 5% of their assets and alternatives, compared to a range of 20 to 50% for institutions. But that's changing quickly. Innovations and structure have allowed individuals to access alternative strategies at lower minimums, with liquidity options not previously available. According to Arctos Partners, the sixth largest private banking and wirehouse platforms committed $110 billion to funds last year, approximately twice the amount invested from the six largest institutional investors in North America. And those flows are just beginning. The potential investment dollars from private wealth to alternatives are staggering. Every 1% asset allocation shift would equate to approximately $500 billion of new investments. The impact of these capital flows will have ramifications for GPs and LPs for decades to come. How will the capital get deployed? What will it do to asset prices? What will it mean for returns and for fees? And who will win and who will lose? This mini series, Private wealth, explores the important questions raised by the accelerating convergence of institutional style investing with private wealth. We'll hear from three of the most influential asset owners, one each from the private banking, wirehouse and RIA channels, and three of the most significant asset managers playing in the space. Just as this channel is in the early innings of changing the investment landscape, so too will this miniseries be just the beginning of our exploration of what it means for you. My guest on the fifth episode of Private wealth is Kip Devere, the co president of Ares Management, a leading global public alternative investment firm that manages $500 billion across credit, private equity, real assets and infrastructure. Kip came on the show last year to share the Aeries story and that conversation is replayed in the feed. Our conversation covers Aerie's credit centric approach to serving the wealth channel. We discuss Aerie's dedicated focus and expansion in private wealth alongside a strategic acquisition five years ago, the resources and strategies Aeries has developed since the firm's approach to scaling distribution, servicing financial advisors, navigating pro cyclical capital flows in credit, and maintaining underwriting discipline amidst rapid growth. We discussed the challenges of building brand recognition in the channel and opportunities ahead in wealth for real assets and infrastructure investments and in Europe and Asia.

[WCM Investment Management]

Before we get to the interview, a quick announcement. We've set new dates for our Capital Allocators University for Investor Relations and Business Development Professionals. Those dates are December 3rd and 4th in New York City. Later in the year is just a better time of year for this gathering. It's post AGM season, travel starts to wind down, it's right before the holiday crunch time and it's a great time for capital raisers to reflect on their previous year and plan for the year ahead. December 3rd and 4th in New York City. CAU for IRBD is a closed door gathering for capital raisers to connect with peers, learn from allocators and other experts and really share in best practices with each other. You can learn [e-mail] University. Thanks so much for spreading the word about Capital Allocators University for Investor Relations and Business Development Professionals.

[Kip Devere]

Please enjoy my conversation with Kip de Vere. Kip, thanks for coming back on.

[Raj Dhanda]

Thanks Ted. Good to see you.

[Kip Devere]

I'd love to get an update on the breadth of Aries today. I know it hasn't been too long since you were on, but when you're growing fast it's hard to keep up.

[Raj Dhanda]

Firm does continue to grow. We're about 500 billion of AUM today, still dominated by the credit business, but we're focused on growth in a lot of the other areas. So real assets, which for us is real estate infrastructure and increasingly with an acquisition that we just closed called gcp, we're focused on digital infrastructure and other parts of that asset class. With GCP we're really a global front now. This GCP acquisition brought hundreds of people in the Japanese real estate business gets us entry in that market so we feel like we've really crossed over from being a US centric firm into being really active in the US in Europe and in Asia.

[Kip Devere]

So we're going to dive in on the private wealth channel in particular. And I'd love to hear your capital formation trajectory in that space from when it started to where you are today.

[Raj Dhanda]

We've started focusing six or seven years ago and frankly did a couple of things early. Some good, some not so good, but it was obvious to us that that market was very large, that there was a tremendous amount of demand from that market to the alternative asset classes that we manage. But the way that we really started building wealth was actually through an acquisition. So we bought a company during that Covid period called Black Creek that was based out in Denver. But with in our head what was really a real estate acquisition to bulk up on the industrial side and add talent investing, we inherited a 75 person retail and wholesaling team. We were fortunate because the now head of our wealth management business was a pretty experienced Morgan Stanley guy, his name's Raj Dhanda, who had actually left Morgan Stanley a couple years prior to go out and be the CEO of Black Creek. So we had somebody pretty sophisticated there who understood wealth. He had been a banker by background but had ended up in the wealth business at Morgan Stanley. And that was sort of the allure of Black Creek and had been continuing to upgrade the talent in what was a 75 person US wholesaler retailer, selling both through wires but also through the RIAs and the Independent folks. We accelerated the growth quickly, although nervously at his insistence, which was the right thing to do. But he basically said this whole opportunity is growing and it's becoming global and we need to make sure that we race to the finish line. Because his view, and I think he was right and we see it today, was that there would be four or five alternatives, firms that really were at the top of the market in terms of market share. And to put it in perspective, the early mover in that space was Blackstone by a long shot. And the reason they were is because they could afford to be. So they went out and hired a ton of people. It's a very people intensive business. And Raj basically said we need to go from 75 to 150 people globally like yesterday, which we did, although took a little bit of a breath before we did it.

[Kip Devere]

So what was that decision process where you hire them for their investment capability and all of a sudden you're getting pitched, hey, this is going to be.

[Raj Dhanda]

A bigger opportunity when we were in the midst of negotiating the acquisition. We saw it as an asset that we could unlock. But it was really interesting period of time. In 2000, 2001, whenever it was Blackstone, because of their early lead in the market, had a roughly 60, 65% market share in that channel. Five, six years ago, that channel was exclusively non traded REITs and BDCs. Blackstone has two very large funds in that channel and we're an overwhelming market leader, almost to their disadvantage. So they'd gotten to a point where FAs everywhere were saying, this is great, my clients want more access to this product. But do I really want to be 60% exposed to Blackstone? Not really. I wish I could diversify. So the race to the finish line comment was a belief has proven to be true that if we got there and we really focused on it, by putting people in the field, educating the RIAs and the FAS about ARIES and our products, we could jump right up the leaderboard and get our fair share, which is what's happened. There are now four or five firms, including Blackstone and Aries, that have probably 30 or 40% market share at the top of the stack.

[Kip Devere]

What does your team that's doing that distribution look like today, from the 75 to the 150?

[Raj Dhanda]

Yeah, it's diverse. It requires a lot of servicing because it's smaller checks with bigger numbers of investors than we've been used to. At the top of the house, we have Raj and he's got a handful of folks that I would call his senior management team. But below them, it's really a sales force in the field. We have a bunch of both external and internal wholesalers. Internal wholesalers really means client facing stuff. When there are requests that come in, they respond to the huge number of clients there. The only other thing I'd add is that we did go out and hire a pretty substantial person in each of the European market, in London and in Hong Kong. So we've taken the effort global as well, which is important. Last year, the capital raising that we did in Europe was tremendous and a little bit of a surprise for us. And I think this year may be that year for Asia. But being global is important because I think it's a global opportunity as you.

[Kip Devere]

Frame out what that team needs to look like. Have you figured out the math of for everybody X number of clients or dollars? You need a certain number of people for sure.

[Raj Dhanda]

Both on the institutional side and on the retail side, we spend a lot of time looking at metrics. I mean, it's really the two metrics that they like to use are number of engagements divided by salespeople. How productive are you just on a visit standpoint? And then of course it's dollars raised by people in the field and are you getting efficiency? And it's all about making sure that you have the right message, you're going to the right people with the right things. Because the death of a salesforce is that you're deploying your sales force with clients in regards to products they're not interested in. Your effectiveness ratio is down, down, down.

[Kip Devere]

What do those rough numbers look like in the Wealth Channel?

[Raj Dhanda]

The way that we think about it is just different from the institutional business. Generally what you're seeing from these clients is they're putting 200,000 to $500,000 check sizes to work. And we found that that money is quite sticky. It's sort of a set it and forget it, particularly on the income strategies like REITs and BDCs. But a lot of the other strategies that folks are bringing are playing into the three themes that we like to communicate around our products. One is durable income. So you have people that just say here's $300,000 and set it and forget it. And I like the fact that it isn't particularly correlated with public markets and I get great income and I'm just going to let it sit there. And we find that to be very sticky. The second one is just diversified private equity. A lot of folks have done that through a secondaries platform. Others have done it through more of a primary private equity product. Blackstone does that, Vista does that. And the third is tax advantaged real assets. And we have others do that largely through REITs and increasingly through infrastructure funds.

[Kip Devere]

As you look at those strategies, what is different other than taxes that you've seen from the demand in the Wealth Channel compared to what you see in the institutional channel?

[Raj Dhanda]

I don't think there's actually a whole lot that's different. I think the driver at retail, and we have a particular lens on this because of our large public BDC that has a stock price that tends to look and feel a little bit more like a public equity exposure to an ria. I had this debate for years with financial advisors where I'd say just buy the bdc. Well, my clients don't like it when the stock goes up and down and they don't like the correlation to the market and the volatility. And so do what we do. The stock goes down by more and the stock goes up. If you Want to, you can lighten up and sell it just after having had this debate. They love the semi liquid product that has very little correlation and not a lot of volatility, hopefully if you're managing it well. And it just looks and feels as they think about allocations for clients, very different than the traditional portfolios that most retail mass affluent investors are used to, which is stocks and bonds.

[Kip Devere]

As you look out now over the next couple of years, how do you scope out what you think this opportunity is in the space?

[Raj Dhanda]

It's funny, a lot of different people are looking at it and come up with vastly different numbers. But I think the point is it is a very large and growing market, importantly for us. It's just been historically for Aries untapped. So if you look at our roughly 500 billion of AUM today, about 40 billion of that is from the wealth channel. Most firms like ares expect that 40% of their capital raising going forward will come from the wealth channel. That's not our expectation. But I mean I think if we think about sizing new capital on an annual basis, my guess is something like 20% of our forecast for 2025 would be retail flows from the wealth channel.

[Kip Devere]

Where is that inflection coming from? So you go back a few years, you weren't even thinking about it. Why is it happening now?

[Raj Dhanda]

I think we're responding to a trend in the mass affluent community that is a desire for more sophisticated portfolios than you'd refer to as the traditional 6040 portfolio. That I think it was 2021 experienced negative returns in both public equities and public fixed income. So folks are looking for more and they realize there are other things out there that they can do. It's the increased preponderance of private market transactions, the increased prominence of alternatives firms. I think there are a lot of folks that are sitting around with whatever their investable assets are, 3 to 10 million dollars. And they're saying all I read about is KKR and Apollo and Aries and Blackstone. Why can't I get access to anything like that? So there's huge demand from the clients and increasingly both the wirehouses and the independents are focused on delivering that for their clients. So I think we're just responding to a large and growing market that for us is pretty obvious that's been historically untapped.

[Kip Devere]

With what started, as you mentioned, non traded BDCs and REITs, it feels like there's a growing supply of different types of structures and vehicles. How has it evolved for you over the Last couple of years, five to.

[Raj Dhanda]

Ten years ago, the wealth retail was literally non traded REITs and BDCs. That was it. I think innovation has been secondaries. Real assets like infrastructure have been interesting and a lot of folks have launched those funds. But we're not going to blow an endless 30 product portfolio out to people because we don't want to be confusing. Our view of how the market has evolved and is likely to continue is that if you're an fa, you're going to say back to my comment of I don't want to be 60% exposed to Blackstone. Most of the FAs we talk to will say I want three to five managers that have a pretty well curated set of products. And I talked about the three themes that we try to communicate with them and we played into that. We have a six or seven product portfolio today to deliver to FAs and it's credit and it's real estate, it's private equity, it's infrastructure. Maybe we'll launch one or two more. But our focus is that's a pretty solid offering, that's pretty comprehensive. And my guess is if you're an fa, you look at Aries and you say I'm interested in four of their funds and then I'm going to do three Blackstone funds and three Blue Owl funds and that's what you deliver for your client and you feel diversified and you're not taking single manager risk because when they're going to come back with their clients, their clients are going to be asking questions, how's performance? Or the markets are volatile, what's going on in my credit funds? You want to be able to call one or two folks that you have a relationship with, that you're invested with, get a quick read on the market so you can turn back around and say I called my folks at Aries and I called my folks at Blue Owl and this is what they told me me and move on with life.

[Kip Devere]

How would you think about this space if you weren't one of the five or six players that are capturing that market share today?

[Raj Dhanda]

I think it's hard. Some of the smaller firms are trying to figure out how to access it, but the top three to five players now are pretty consistent in terms of capital raised. People's market share has changed over five years, but it hasn't changed that much over the last year or so. The top five have been the top five now for a while.

[Kip Devere]

As you look at each of those three themes, just love to hear the story behind, you know, Start with a durable income.

[Raj Dhanda]

Yeah, grew up as a credit firm. And a lot of what we do across everything institutional, is built on private markets credit being, we think, less volatile than public market credit and delivering premium yields. That message is pretty easy for people. We have a long track record of delivering performance behind that message. So the funds that we have in the retail channel and credit are not surprisingly the largest ones that we manage and are growing the quickest. I think if you're smaller, you have to come with something that looks really differentiated because a lot of the product that they see, whether it's from Aries or Blue Owl, it's similar. And you're just choosing, I think, based on brand name or manager selection or performance certainly. But you get to the top four or five people pretty quickly and it becomes obvious that it's where you want.

[Kip Devere]

To allocate the concept that private credit is less volatile, higher returns than public. Sounds a lot like what you hear about private equity and public equity and some of the grumbling about different marks. Why would it be the case that the private credit has less volatility than public other than infrequent marks?

[Raj Dhanda]

It's quarterly marks, and it's mark to model versus the vagaries of the markets that don't necessarily make sense over time. I think public credit can be hard because people tend to be bad sellers or they just tend to be sellers because they feel that they need to. So you set up buying loans at 99 and a half and you get a coupon. And by the way, if you don't like the way things are going to, you have the benefit of liquidity, but you're probably selling at 97. So if you're making a 6 or 7% coupon and you take two points to exit and you're in for two years, blah, blah, blah. It's just the nature of creating losses there. You can obviously also buy loans at par and have them trade to 102 and sell them. So if you're good, you're doing that too. But the key is really private credit. And we believe this and believed it for 20 years. And this is the merit of the asset class is you've originated it, you've done tons of due diligence, you have better information, but more than anything, you control your downside. So in most private credit deals, you're levering a company five to six times against enterprise value pick up maybe current number of 12 to 15 times. So you've got a lot of room. And if things don't Work well, maybe you're levered eight times, companies still probably work 10 to 12 times. But the key is that you have the ability to actually go in, restructure and protect to the downside, maybe own a company, which we have to do sometimes, but you have to have the resources to do that effectively. But the point is you have this free call option as a lender to own companies if you have to. And if you're lending to good companies and you control your outcomes or you're a lead investor, you can probably get to better resolutions, limit capital losses over time. And if you look at our historical charge offs versus defaults in the public markets, they're just better over a 20 year period because of that control. But you need the resources to be able to go in and roll up your sleeves and do that.

[Kip Devere]

On the theme of diversified private equity, one of the questions you always get in the structure of say interval funds, which seem to be gaining a lot of traction, is how does this work of an asset that is not liquid in a strategy that has some liquidity provision?

[Raj Dhanda]

The key is if you're an investor in that type of strategy, you have to look for diversification. I'd be concerned looking at a fund that was quote, semi liquid in a concentrated pool of private equity assets, because there's no easy way to create capital to the extent you need it. You can manage it by having a credit facility that you leave undrawn and you can draw down your credit facility if you need it. And there are other ways to manage through it. But I think the key is in a private equity strategy you want a lot of diversification.

[Kip Devere]

And how do you think about that liquidity requirement as a strategy maybe different from how you might go about. You could say an institutional private equity strategy that doesn't have that need for.

[Raj Dhanda]

The broad diversification, the whole big picture wealth. It's something we talk to the wires and the FAS about a lot, which is the key is that as this market is tapped and growing, that it's actually done thoughtfully. We tell everybody that the education is the key and we're like, it is semi liquid, you're not going to be able to get back more than most likely 20% of your capital over a one or two year period. So think about that when you allocate your initial check size because it gets invested immediately. So as long as the end investor understands that it truly is semi liquid, that is they can't get it all back yesterday. Everybody still has their bird fingertips from 09 around gating of hedge funds and how it was horrible and they couldn't get their money out. But the way these structures are set up are actually set up to protect investors because the alternative is a fire sale of assets at bad prices, which creates bad outcomes for the investor. So long as they're knowledgeable and thoughtful about what they're getting into. And that requires a lot of education both from us and from the financial advisor community. I think this will be sensible growth. Tapping a market that has a lot of desire to be in these assets.

[Kip Devere]

As you look at the market for some of these products, maybe particularly say interval funds, how have the fee load evolved as these products have gotten rolled out relative to what you might see in the institutional market?

[Raj Dhanda]

What's nice here is that the fees are almost off the shelf. If you were to launch a non traded BDC today, you'd say who are the biggest non traded BDCs? What are their fees? Boom. By the way, they're all exactly the same and they haven't moved much. That's true of the other asset classes as well. So everybody's a carbon copy of one another. By the way, the fees that are then paid through to distribution, so if you're going through a wire are also standard. It's off the shelf and there hasn't been a lot of discussion about it. As you get bigger and more folks have more capital with you, they always negotiate fee. We'll see if that happens in time, but it's not part of the discussion today. Everything is right off the shelf.

[Kip Devere]

What are some of the challenges that you've learned in managing these products in the channel that you might not have known when you jumped into it?

[Raj Dhanda]

It's very resource intensive. It requires a lot of people and a lot of education and going to a lot of conferences. And for us it's building the Aries brand. Believe it or not. We're still at a point that when you go to certain places, people just have a better feel. For a firm like Blackstone or KKR, who's been around 20 years and is always on the front page of the Wall Street Journal, Aries, historically, because we don't have a large cap private equity business, didn't have that history of being on the front page of the Wall Street Journal for a while, Some of that by design for a long period of time before we went public, but after we went public, part of that exercise was building the brand, getting it out there and having people understand what the firm is, how we're different from other alternatives, managers that so not that the institutional marketing business isn't people intensive. It is, but this is particularly people intensive and you really need to be in geography. Our institutional sales force is all over. I mean, we have folks in California in the Northeast and the Southeast in Asia and Europe. We need somebody pretty close because they actually have to go into a local market like that and see the FAS there. And these are FAS that manages $500 million to a billion dollars of client money. And if you want to try to get that deep with those type of folks, which over time I think everybody needs to, it just requires a lot of people.

[Kip Devere]

How have you figured out how to maintain a consistent brand message when you have so many different people going out telling the story?

[Raj Dhanda]

It's just making sure at the top of AWMS areas, wealth management solutions, there's the consistent view of what we stand for, what differentiates us both in terms of people and performance. And then these three themes that I mentioned before were the things that we lead with. These are the themes that we want to be consistent on. And then we put the product that we have behind those themes and it all hangs together pretty well.

[Kip Devere]

When you have what feels like a tidal wave of capital coming, you're one of the players in this mix. How do you think about the level of excitement and what energy you have to put in to make sure you capture an opportunity like that?

[Raj Dhanda]

We've spent a tremendous amount of energy at the most senior levels of the firm. Mike, myself, a whole bunch of others spend a lot of time on this. The big dollars as you go in inevitably are driven by the wires because they're the largest. Aus, Morgan Stanley, Merrill lynch, these are huge drivers of capital. So early days we went and had very senior level meetings at those platforms where we have great relationships because of what we're doing elsewhere, not in the wealth channel and said, this is something we're really focused on. We want to be top three with you guys and these are the products that we want to have on your system. In a place like Morgan Stanley, there's huge manager vetting and selection teams. So you know, we were doing that years ago and we weren't doing it with salespeople, we were doing it with the senior, most people at our firm to make sure that they actually understood what our vision was. So I think we're pretty close to fully formed in terms of where we want to be. And now it's just taking that message and broadly distributing it into smaller ticket, smaller city, smaller institutions.

[Kip Devere]

As you've looked at mapping that Part of it out say the independent landscape. How do you triage?

[Raj Dhanda]

We do have partnerships with people. There are folks out there who do that for a living, whether it's iCapital or case. They do a really nice way of really being deep with that community that we couldn't possibly go make one off calls on all the time. And it tends to be in group formats. And if you're not doing it through the wires, there are folks that are able to get non wirehouse FAS and RIAs in a room. If I can get invited into that room. That's a great format because you have a hundred smaller market FAS all in the room. Hearing about Aries, hearing about how we're differentiated and they're like oh great, now I'm going to see this on offer. I have a better feel for who they are and what they do and how they're different. But it requires a lot of running around and just trying to get in front of people because those tickets are small. If you're talking about a billion dollar RIA in a smaller market, they probably have $110 million clients, $205 million clients and their allocation is going to be 300,000 to four funds. That's hard for us to chase down. If we're not doing it in some sort of group format. We put on our own thing. So we do events where we get those people in a room and we do the whole song and dance and try to tell them about Aries. We do it ourselves, but we also have partners that help us do it.

[Kip Devere]

So you mentioned a surprising interest last year from Europe and maybe this year is going to be the year of Asia. What are you seeing in the international markets for wealth growth?

[Raj Dhanda]

And it's interesting because we for a really long time, because of the public, BDC spent a lot of time in London trying to figure out how to basically get some listed income fund in Europe. And we talked to every bank and everybody and there were a couple examples of things that got done pre the GFC that actually didn't go so well. We found that there were burnt fingers on these traded or non traded income products. We gave up and just said we're just raise institutional capital here and I don't think this is going to work. Launching some of these income products in Europe pretty eye opening for us because we attracted a lot more capital than we expected. That's a good sign. We think Asia part of it is just we're new there with people on the ground. So we have the first year Effect. My comment on Asia is more about our first year effect this year than anything else. Look, it's a big market with a lot of the same dynamics that exist here, which is you just have folks that increasingly are hearing about all this stuff that these alternative managers are doing and they're saying why don't I have any exposure to this? And if we're smart and others are smart, which I think we've been in developing the right products and just simply making them available and making phone calls to make them available, there's demand there.

[Kip Devere]

As this gets more and more popular and that say 40 billion becomes whatever it does, whether it's 20 or 40% of your growth, how do you think about the implication of that large flows coming in on the markets that you're investing in?

[Raj Dhanda]

The influence is when you see large flows, that money has to get to work immediately, particularly in the income strategies. We're used to it with the public bdc, but it's inherently pro cyclical money. You're taking inflows in during good markets. Inflows tend to go down in bad markets. Unfortunately. You wish you could convince retail to come in during bad markets, but usually it doesn't work that way. So it does have a bit of an influence. And particularly with a couple of our competitors that are more oriented to retail than we are, if they have a big flow quarter in a particular product, we'll see them be very competitive on new underwritings because they have a bunch of cash sitting around that they need to deploy comes and goes point in time. Actually somebody asked me a very good question that no one had asked me before which said will there inherently be worse performance in these funds because the money is coming in in a pro cyclical way? I said to him, convince your clients basically to not redeem during volatile times. And if it's really volatile, you should probably convince them to try to allocate a little more. But timing vintage is tricky for anybody and it's really tricky for a mass affluent investor. But it's a good question. We'll see. Because it's pro cyclical money, it inherently has a little bit of an impact on the investing environment on a quarter to quarter basis. Over time it should smooth out.

[Kip Devere]

How do you think about the maintaining discipline in underwriting standards when you're faced with capital's in and you have to put it to work?

[Raj Dhanda]

It's really only relevant in our credit products. We want a balanced set of capital sources specifically to private credit because it's most relevant to the wealth piece where everyone has BDCs. We have commingled funds that are drawdown funds that are not remotely pro cyclable. You can just say we're not deploying anything in that fund. We have separate accounts, same thing. We have a public BDC which depending on repayments is either needing to put capital to work or not. And then we have retail credit funds. So as long as we have a balanced roster of stuff to deploy, we're not under so much pressure to deploy because of the balance of capital that I feel comfortable with how we're set up. I would not want 75% of my credit capital to be in a pro cyclical structure like this, which it inherently is. And that's where you can lose discipline.

[Kip Devere]

As you look at planning your business for what you think is going to happen, what do you see as scenarios where this doesn't play out?

[Raj Dhanda]

Growth that's too fast with not enough education, that's just not good for the growth of this industry. It just needs to be smart growth where people understand and are excited, hopefully right about what they're getting access to. But you just don't want to grow too fast. Which is why we've tried to create the infrastructure with 150 or so people globally that we can get out there. But the question for me when we launched the credit funds in particular was how do we shut it off? We've seen one or two competitors in the BDCs and retail, they call it queuing, basically say we're not really accepting new capital right now. The FA's tend to not like that because they have clients who want to put money to work and you're turning them down. We've actually seen one or two of our competitors cue credit capital over the last year or two. I think it's really smart. If the investment environment's not there, you shouldn't be taking pro cyclical capital and putting it to work at any price. So the risk is that it grows too fast and that people underwrite poorly because of the nature of the capital. And then the returns aren't there and you lose confidence.

[Kip Devere]

Eventually we probably go through another cycle. Maybe there's a recession at some point in time. How have you prepared for both the education and client management and then in your portfolios when there's been such a wave of growth in the space for a time that isn't as robust.

[Raj Dhanda]

It's inherently not any different than the institutional market because you're always talking with clients about times seem good, but what happens if they're not. And we talk about our track record of managing through cycles and downturns and our risk management infrastructure and portfolio management shops and all that stuff. So I don't think it's different. But the retail investor hasn't been tested yet because most of this has come online with COVID and coming out of COVID and it's been a pretty easy, low volume period of time. So I don't think it's any different. But I'm not sure how it'll play out with this customer base. I'm just hopeful that there is enough education and enough understanding of the structures, which I do think are set up well to protect investors in downturns. And then we'll just do what we always do, which is we'll manage the capital the same way in these funds.

[Kip Devere]

All right, Kip, I want to make sure I get a chance to ask you a couple of closing questions that are different from the last time you came. What was your first paid job?

[Raj Dhanda]

I was a golf caddy. It was my first paid job. I think I was 13, 14.

[Kip Devere]

And what did you learn from doing it?

[Raj Dhanda]

To be honest, I grew up in a place where we had a lot of doctors and lawyers and bankers, so I was lucky. I learned how to talk to some of these old rich guys who liked to play golf. And I was pretty well behaved. It was be buttoned up and make conversation, but do what you're told. And if you did that, you tended to get paid a little bit better.

[Kip Devere]

How's your life turned out differently from how you thought it would?

[Raj Dhanda]

I feel very blessed and very fortunate. I don't know if it's different. I feel like I've achieved a lot of the things that I had hoped to achieve through hard work and partnership with friends that I've worked with a long time now. And I've got a great wife and great kids. And I just feel very blessed. I don't know if it's different, but I feel like the things that I was hoping would come around, came around.

[Kip Devere]

What's a mystery that you wonder about?

[Raj Dhanda]

I think a little bit, just as we're all getting older, about mortality and what happens and where you go and what's the truth. There is something that's always been a mystery for me, but we'll see if we ever figure that one out.

[Kip Devere]

All right, Kip, last one. If the next five years are a chapter in your life, what's that chapter about?

[Raj Dhanda]

I've got two kids in high school. One is going off to college next year. The other one's a freshman in high school, so she'll be gone in three years. So the next three years are obvious for me, which is I've still got kids who are in the house and going to college and all that. And I think when we get in years four and five, the question will be, what are we doing? I'm still very engaged and enthusiastic about my job, so I'm trying to make sure I enjoy that five years of still having the kids around, still having a job that I love, working with people that I love. I think the harder chapter for me is what's the five to 10 years? And it's whether I'll still be enthusiastic and super engaged or whether the kids will be gone and I'll want to go follow hobbies, passions, travel, skiing, whatever else. So. But I think the next five years, so long as everything hangs in, I'm doing what I'm doing for the time being, and I'm pretty enthusiastic about it and frankly, pretty lucky to have what I have.

[Kip Devere]

How about the next five years?

[Raj Dhanda]

At Ares, the platform is, for the time being, fully built. We feel like we're in all the asset classes on the alternative side that we need to be to be of the most value to clients, whether it's institutional or retail, we're focused on making some of them a little bit bigger, bigger and better, particularly probably in real assets and private equity and then a focus on growth in Asia. I don't think having done a handful of acquisitions to fill out our dance card over the last couple of years, there's anything really big that we're missing or that we have our sights on. Never say never. So I think it'll be more of the same. Keep up good performance, keep attracting capital, make sure we retain the people that we have who we think are great, and continue pressing a lot of the advantages that we've built.

[Kip Devere]

Well, Kip, thanks so much for sharing this great insights.

[Raj Dhanda]

Always a pleasure.

[Ted Seides]

Thanks for listening to the show. To learn more, hop on our [e-mail] where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast, transcripts, my investment portfolio, and a lot more. Have a good one and see you next time.