Institutional Investors May Question the Benefit of Ares Management’s (ARES) IPO and Acquisition of AREA Property Partners, Report by UNITE HERE Says

A year after Ares Management LP (ARES) acquired real estate firm AREA Property Partners and following Ares’ weak IPO, it remains unclear whether the marriage of the two firms will ultimately yield positive results for fund investors.

NEW YORK--(BUSINESS WIRE)--Ares has experienced a slow fundraising pace on two real estate funds, while legacy funds have lagged peers in performance.

A new report by UNITE HERE is available at www.pecloserlook.org.

Key points:

When it acquired AREA Property Partners in 2013, Ares Management LP (ARES) picked up two AREA real estate funds in the process of fundraising. A year later, both funds remain below target and have exceeded the average marketing time of 19 months for closed-end private equity real estate funds that reached a close in 2Q 2014¹.

Ares US Real Estate Fund VIII reported having raised $490 million by July 2014, 65% of its $750 million target after 30 months in market².

Ares European Real Estate Fund IV reported having raised $556 million by July 2014, just over half of the target size after at least 20 months in market³.

Many of AREA’s predecessor funds have underperformed – of the 12 funds with vintages dating back to 1996, 10 ranked in the 3^rd or 4^th quartile when measured against peers as of August 2014⁴.

In addition, Ares Management’s (ARES) IPO filings reveal a strategy based on substantial revenue stream from management fees, upon which Ares relies more heavily than other investment management firms⁵. While this model may appeal to shareholders, limited partners in Ares funds may question whether its dependence on management fees properly aligns GP and LP interests.

Report PDF available here.

¹ Preqin Special Report: Real Estate Fund Manager Outlook June 2014
² Real Estate Finance & Investment, New Investment Funds, January 9, 2012; Ares US Real Estate Fund VIII, formerly AREA Value Enhancement Fund VIII SEC Form D, 7/7/14.
³ Pensions & Investments, “Texas Permanent School Fund eyes AREA investment Texas Permanent School Fund eyes AREA investment,” November 14, 2012; Ares European Real Estate Fund IV, formerly AREA European Real Estate Fund IV – SEC Form D 7/7/14
⁴ Preqin.com, accessed February 2014, August 2014.
⁵ Bloomberg, “Ares Falls in Debut After First Private-Equity IPO Since ’12,” May 2, 2014