ARESAres Management Corporation

“we engaged one of the top three global management consulting firms to supplement our own internal analysis of our software-oriented portfolio. They conducted a nine-week independent and detailed review of the potential forward-looking AI risk in our software-oriented portfolio companies, and the study also included our relatively lower software exposure in our European direct lending portfolio. The study graded each company on a spectrum based on risk characteristics and concluded that our software-oriented portfolio is very well positioned with 86% of the portfolio with low risk of potential AI disruption. Approximately 13% of the portfolio was classified as medium risk—these companies are performing well today but have a greater need and an opportunity to adapt to AI risks to their business—and only 1% of the portfolio was categorized as having high risk of AI disruption.”

“we have tracked a basket of companies focused on core operational software, systems of record and highly regulated markets where their loans have traded down 2% on average year-to-date to 98–99 dollars, versus another basket of software companies primarily focused on content generation, data analysis or productivity tools where their loans have declined 24% on average year-to-date and now trade below 65 dollars.”

“If the consultant's framework, which aligns with our own rigorous underwriting views, proves directionally correct, the portion of our software exposure that is medium to high risk represents less than 2% of our U.S. and European direct lending AUM and well under 1% of our total firmwide AUM.”

“we have been investing in the digital space broadly for the past 10 to 15 years—everything from towers to networks to data centers—across several areas within the firm, including Real Estate, Infrastructure, Asset-Backed, as well as our Direct Lending business and Secondaries in both Real Estate and Infrastructure. This has been a longstanding investment focus for us, with over 10 billion dollars invested historically in the space.”

“Our Digital Infrastructure group, which includes our own vertically integrated operating platform, Ada Infrastructure, has a differentiated position in the market characterized by long-standing hyperscaler relationships, significant investment and development expertise, and multiple seed projects in the pipeline in top-tier markets. We expect to hold a significant first close for our global data center fund this summer.”

“To oversimplify: as CEO of Ares Management Corporation, we have over 500 core systems that run our company—financial systems, cybersecurity, order and trade management systems. We are not ripping those systems out. We are putting an AI layer in to get the most efficient output from those systems and the data that sits within them. Those system providers are using AI to deliver a better product to us.”

“One exciting development with the GCP acquisition last year was adding the Ada digital development capability that Mike mentioned, which came with a very attractive seed portfolio for which we raised about 2.5 billion dollars last summer for initial assets in Japan, and we are currently going out with a broader fundraise to address not only the seed assets but the significant pipeline behind it.”

“In Digital Infrastructure, we are raising a global data center equity fund to take advantage of the multi-decade supply-demand imbalance, as the hyperscalers drive demand for trillions of dollars of cloud and AI computing over the next five years, a significant portion of which will need to be solved by private equity and private credit.”

“adding this development capability is very powerful for our future. In terms of market size, it is absolutely massive—a multi-trillion dollar market opportunity. Some of that will be in the domain of the hyperscalers themselves; however, we have sized the third-party market at around 900 billion dollars.”

“Software is a topic that is rightfully drawing a lot of attention, but there seems to be confusion on how to distinguish between software exposures and different software companies. Senior debt is much more protected from downside risks than equity in the capital structure and individual software companies have varying degrees of potential AI disruption risks and opportunities.”

“When you are talking about data centers, it is not just data centers—it is GPUs, power and energy. We are also one of the leaders in the renewable energy and energy transition space, and you saw what we were able to do with our X-energy IPO. The digital infrastructure opportunity is pulling together all of these teams at scale to address the market opportunity.”

“Personalize it: you are probably not ripping Excel out of your computer—you are using AI to supplement a core system. Many AI opportunities will enhance rather than displace core systems. Those are the types of things we have focused on investing in.”