A private credit fund managed by Ares Management Corp. recorded its largest monthly loss ever in February, further evidence that the $1.8 trillion private credit market is deteriorating.
According to data calculated by Bloomberg based on the fund’s regulatory filings, the non-listed business development company Ares Strategic Income Fund, established in December 2022, lost 0.68% in February. February was the worst month for the leveraged loan market since September 2022.
Including a small loss in January, the fund managed assets of nearly $23 billion and has declined by 0.7% so far this year.
According to a person familiar with the matter, the fund’s decline reflected the overall sell-off in the public debt market, which Ares uses to price its assets rather than any specific investment losses.
A spokesperson for Ares declined to comment.
Ares officially launched ASIF on its wealth management platform and among its investment advisors in April 2023, with the aim of expanding its influence among individual investors.
The poor performance of the Ares fund is not an isolated case. A rival fund under Blackstone also recorded its worst monthly performance in more than three years in February. Blackstone attributed this to the widening gap between public and private market valuations, as well as unrealized losses on individual stocks.
According to the S&P UBS Leveraged Loan Index, the performance of these two funds still outperformed the leveraged loan market, which had a return rate of -0.82% in February and -1.08% as of February this year.
Lloyd Blankfein, the former CEO of Goldman Sachs Group, said that the accumulation of unsold private assets on investors’ balance sheets is a warning sign that some of these assets may be overvalued – and a trigger could lead to widespread asset write-downs.
“To some extent, there needs to be a coercive force or a clearing mechanism that makes you face the true value of your balance sheet,” Blankfein said in an interview with Francine Lacqua on Bloomberg Television.
“I like to use the analogy of the kindling on the forest floor that eventually sparks,” Blankfein said. “But the longer the interval between the spark and the kindling catching fire, the more kindling accumulates.”
He also expressed concern about the growth of private credit in individual investors’ portfolios. “When individual consumers – that is, taxpayers and citizens – suffer losses, government officials get very, very angry,” he said earlier this month.
