Shares of Ares Management (NYSE:ARES) fell 4% on Tuesday after the firm moved to limit withdrawals from its $10.7 billion Ares Strategic Income Fund.
The company, which manages roughly $623 billion in assets, applied a 5% redemption cap for the fund - a restriction that is part of the vehicle’s design and allows the manager to restrict outflows within any given quarter. The decision followed a jump in redemption requests to 11.6% of the fund in the first quarter, during a period of wider outflows affecting the private credit asset class.
During the first three months of the year, the Ares Strategic Income Fund received $1.2 billion in redemption requests. Ares satisfied $524 million of those requests, a sum the firm described as just over two-fifths of the total requested withdrawals. By contrast, the fund honored all redemption requests in the fourth quarter of 2024 even though those requests had exceeded the 5% threshold.
In a letter to investors, the firm explained the decision, saying: "We have made this decision, as with all capital allocation decisions, aligned with what we believe are the best interests of the fund and all of our stakeholders, including the overwhelming majority of shareholders who remain invested."
The Ares Strategic Income Fund is aimed at high-net-worth individuals and is one of the firm’s flagship private credit products. The move to enforce the cap comes amid similar steps taken by other managers in the space. Competitors, including Apollo Global Management and BlackRock’s HPS Investment Partners unit, have also put withdrawal limits in place on private credit funds as redemption pressures have risen.
Context and market response
Investors reacted negatively in the equity market to the firm's announcement, with the company’s stock declining 4% on the day the restriction was reported. The decision to cap outflows at the contractual 5% level was presented by the firm as an action intended to protect remaining investors in the fund while adhering to the fund’s governing terms.
What the figures show
- The fund size: $10.7 billion.
- Total assets managed by the firm: $623 billion.
- Redemption requests in Q1: 11.6% of the fund, equal to $1.2 billion.
- Amount fulfilled by Ares in Q1: $524 million, or just over two-fifths of requests.
Implications for private credit funds
The action by Ares illustrates how built-in structural limits in private credit funds can be deployed when concentrated redemption demand materializes. The firm emphasized that it views the step as consistent with the fund’s design and the interests of its investors.
Summary takeaways
- Ares enforced a pre-established 5% quarterly cap on redemptions for its $10.7 billion private credit fund after first-quarter requests rose to 11.6%.
- The firm processed $524 million of $1.2 billion in Q1 redemption requests, honoring slightly more than two-fifths of requests.
- Similar withdrawal restrictions have been applied by other private credit managers amid heightened redemption activity.