Ares SSG prioritizes downside hedging as Asia’s distressed odds climb to new highs

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Alternative investment manager Ares SSG is prioritizing loss protection before adding to its portfolio at a time when global investor demand for distressed opportunities in Asia Pacific is rising to new levels amid the pandemic crisis.

There is “healthy and strong demand” from investors worldwide to invest money in emerging markets in Asia, particularly in the distressed and special situations area, said Edwin Wong, Managing Partner and CEO of Ares SSG, during a fireside chat at Asia PE-VC Summit 2021. “It is clear that the opportunities set are unique in Asia and will not disappear anytime soon.”

“The most important thing” in the global health crisis for Ares SSG – which is focused on loan investments across the Asia-Pacific region – is protecting against losses before “putting more risk on the books,” Wong said. “As a company, we probably spend 30-40% of our time managing risk rather than finding new deals.”

In September 2020, the region’s private debt market had a record $ 59 billion in assets under management (AUM), up 195% over the past five years. But the Asia-Pacific region is still significantly smaller when compared to North America and Europe, which together make up 91% of global AUM, Preqin data shows.

Investors are flocking to build or deepen their credit presence in the region. AustralianSuper, Australia’s largest pension fund with over $ 225 billion in membership, announced in July a plan to triple its personal loan portfolio to over A $ 15 billion ($ 11.1 billion) over the next three years. In June, Muzinich & Co, based in New York, hired the DBS Group from Singapore as an anchor investor in its first private debt fund for the Asia-Pacific region, after the fund had been launched about a year earlier.

The trend is accelerating with a recent series of fundraising updates, executive hires, and capital commitments involving players from asset managers such as Barings, Tanarra Credit Partners, and Fidelity International; to Limited Partners (LPs) such as the South Korean Public Officials Benefit Association (POBA), the Ontario Teachers’ Pension Plan and the Canadian Benefit Pension Plan OMERS.

Ares SSG, a subsidiary of US-based Ares Management Corporation, was among the last to increase its stake in the sector to over $ 1.6 billion with the final closing of its Secured Lending Opportunities Fund III in July. Fund III, which has already used over a quarter of the tied capital, is twice as large as the previous fund, which was closed in 2017, with over 800 million US dollars.

As one of Asia’s largest alternative asset managers, Ares SSG has a team of over 85 professionals in nine local offices that manage approximately $ 7.5 billion.

While investors are optimistic about the opportunities in the virus-stricken market, Wong warned that the pandemic is also making the restructuring process difficult. “The storm needs to dissipate to some extent so that everyone can agree on a set of predictions [around the business to be restructured],” he said.

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