Ares' Blair Jacbobson: Disconnect Over Private Credit Headlines

Ares Management’s Blair Jacobson said there is a “real disconnect” between negative private credit headlines and what the firm is seeing in its portfolio. He cited annual growth of 8% to 12% across companies and non-accrual rates below historical levels, suggesting underlying credit performance remains healthy despite market concerns.

Analysis

The market is still treating private credit as a late-cycle accident waiting to happen, but the cleaner signal here is that underwriting discipline is likely separating the platform winners from the rest. If portfolio company growth is holding in the high single digits while non-accruals remain benign, the first-order effect is not just stable earnings for ARES; it is improved fund-raising power, lower perceived refinancing risk, and a widening gap versus smaller direct-lending managers that lack scale, sourcing, and restructuring resources.

The second-order beneficiary is the private credit ecosystem’s capital stack: banks remain constrained on leverage loans, so any reassurance on asset quality should support continued migration of upper-mid-market and sponsor-backed borrowers into private markets. That matters for ARES because fee-related earnings can compound even if spreads compress modestly; the business model is more sensitive to AUM retention and deployment velocity than to headline default scares.

The key risk is timing. Private credit stress often shows up with a lag of 6-18 months after rate resets, not when management teams are still pointing to growth; refinancing pressure, not current performance, is what can crack the story. If funding markets tighten again or EBITDA growth rolls over into the low single digits, today’s “all clear” narrative could reverse quickly, especially for strategies exposed to cyclical sponsors or covenant-lite structures.

Consensus may be underestimating how much of the negative sentiment is already embedded in valuations across alternatives managers. That creates a favorable setup for ARES if the market simply updates from a default-driven frame to a fee-growth frame. The contrarian angle is that the real trade is not on credit losses, but on whether ARES can keep converting perceived controversy into inflows while competitors face slower fundraising and higher redemption risk.

Key Decisions for Investors

• Long ARES on a 3-6 month horizon: use weakness tied to broader private-credit headlines to build exposure; the setup is asymmetric if non-accruals stay contained and fundraising momentum persists.
• Pair trade: long ARES / short a smaller private-credit or alternative manager with less scale and more fee sensitivity; thesis is widening dispersion as capital flows to perceived quality and underwriting depth.
• Add call spread exposure in ARES for the next 2 earnings cycles; risk/reward favors upside if the market re-rates the stock on stable asset quality and better-than-feared fee growth.
• If credit spreads widen materially or refinancing conditions tighten, reduce long exposure quickly; the signal to de-risk is not current delinquency data but forward default expectations over the next 6-12 months.