Private credit firm Ares is on track to pay $564k a head, but there's a catch
Ares, the private credit firm is still hiring and expanding, but working there might prove less lucrative than in the past.
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In today's second quarter results, Ares said that it employs 2,950 people, which is 300 more than it employed at the end of the first quarter. It set aside $833m in compensation and benefits to pay them, an average of $282k each for six months of the year.
While this was roughly equivalent to average employee pay in the first half of 2023, some aspects of Ares' compensation are looking less healthy. Performance related compensation for all employees was -$29m in the second quarter and -$80m in the first half.
The decline in performance related compensation reflects the fact that Ares is accruing negative bonuses from its private credit investments in the short term. Profits for the first half are down 11%.
This is the first time for at least five years that performance related compensation for the first half of the year at Ares has been negative. In the heyday of 2021, first half performance compensation at the fund was $888m.
The losses on "unrealized performance compensation" (funds yet to be exited) are greater still, at $172m in the first half.
Will this dissuade people from joining Ares? Probably not. The firm is still growing - assets under management were $447.2bn in June, up nearly 20% year-on-year, and it's just closed a new $34bn direct lending fund. But today's results are a reminder that just as carried interest paid in private equity is falling, carried interest paid in private credit is doing the same.
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