Private Credit Market Volatility Not a Repeat of Financial Crisis, Analyst Warns

Ares Management Corp. Sees Opportunity Amid Private Credit Rout

Ares Management Corp. shares have plummeted 30% this year, but BofA Securities Inc. analysts see a "fire sale opportunity" to buy the stock. The analysts, led by Craig Siegenthaler, believe the selloff in alternative asset manager stocks is an overreaction to minor data points, primarily concerns about the private credit industry's loans to software companies at risk of being disrupted by artificial intelligence tools.

The $1.8 trillion private credit market has been thrown into turmoil, with shares of Blue Owl Capital Inc. plummeting 40% this year and notching their worst monthly performance ever in February. Bearish bets against Blue Owl climbed to an all-time high earlier this month. However, BofA analysts rate Ares, Blackstone Inc., KKR & Co., and Blue Owl as buys, citing their confidence in the companies' ability to navigate the current market conditions.

Ares, a "world class" alternative asset manager with $160 billion of dry powder, is the analysts' top pick. The company's strong fundamentals and ability to manage risk make it an attractive investment opportunity, according to BofA. The analysts also note that the private credit sector is not a repeat of the 2008 financial crisis, citing lower leverage and a more stable economic backdrop.

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While concerns about asset quality and redemption requests have mounted in recent weeks, BofA analysts believe the market is overreacting to minor data points. They argue that the current situation is not a repeat of the 2008 crisis and that the private credit sector is well-positioned to weather the current market conditions.