BofA Securities has maintained a positive stance on Ares Management Corporation, reaffirming its Buy recommendation after a group investor dinner with Ares CFO Jarrod Phillips on Tuesday evening. The firm told investors that Ares is trading at a valuation roughly 1.5 standard deviations below its five-year average, a discount BofA views as compelling given the manager’s growth visibility.
Valuation and growth visibility
BofA pointed to several structural elements that underpin its long-term earnings per share outlook of around 20%. The bank emphasized the importance of shadow assets under management and European waterfall structures as mechanisms that support visibility into future fee generation and earnings growth.
Business mix and demand drivers
The firm anticipates that Ares’s organic growth will remain robust, with increasing contributions coming from its real assets business and the asset-based finance franchise. Institutional appetite for non-investment grade direct lending remains strong, BofA said, driven in part by demand from Middle East sovereign wealth funds that are looking to diversify investments internationally at an accelerated pace.
Key takeaways from the meeting
- BofA outlined six primary conclusions from its meeting with management. One projection is that credit quality metrics should plateau in the second half of 2026, at which point growth rates of non-accruals and net losses are expected to stabilize.
- Redemption requests tied to private business development companies improved materially in the third quarter of 2026 on a quarter-over-quarter basis.
- Ares’s approach to data centers is described as differentiated: a 70-person investment team is concentrated on developing projects in urban-adjacent locations, seeking high-teens internal rates of return with downside cases around 12%.
- The firm typically secures leases in excess of 15 years with investment-grade rated tenants and uses make-whole provisions to protect returns. Ares anticipates a large first close for its inaugural dedicated data center drawdown fund this summer.
Deployment environment and deal flow
Overall deployment opportunities were characterized as broadly attractive across Ares’s businesses, with one notable exception: U.S. direct lending. That segment has been affected by muted private equity activity following geopolitical developments tied to the Iran conflict and volatility in the software-as-a-service sector during the first quarter of 2026. At the same time, elevated redemptions in retail vehicles have had the effect of improving returns on larger deals.
Strategic optionality
BofA also flagged the possibility that Ares could look to acquire a large private equity manager as a way to strengthen its capital markets capabilities and distribution. The bank specified that an acquisition target would be a manager with flagship funds larger than $15 billion in assets under management.
Recent financials and fund closes
In its recent reporting, Ares posted first-quarter 2026 results that fell short of analyst expectations, delivering earnings per share of $1.24 on revenue of $1.27 billion. Separately, Ares announced the final close of its oversubscribed Pathfinder Fund III, which secured $8.5 billion for the asset-based finance strategy.
BofA’s reaffirmation reflects a view that Ares combines an appealing valuation entry point with clear avenues for fee and earnings expansion, even as certain pockets of deployment and macro-linked activity remain uneven.