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| David Hinman |
Ares Management has brought on board Pacific Investment Management Co.'s David Hinman as lead portfolio manager for the Ares Total Value Fund and as a member of the investment committee for all Ares Capital Market Funds. This will enable the L.A.-based investment management firm to become more active on both the long and short side of the investment-grade corporate credit markets. "We believe that risk is a function of knowledge," said David Sachs, portfolio manager and co-head of Ares Capital Markets Group. "Last March, we started the Ares Total Value Fund--a credit hedge fund that is targeted to invest all across the corporate credit markets. However, to date we have focused primarily on the BB and below corporate credits, which is where our team has over a decade of experience," said Sachs.
Hinman's experience at PIMCO is across the entire corporate credit spectrum, including significant high-yield experience. But most recently he had been primarily focused on the BB crossover and investment-grade markets. "We could have gone long investment-grade credits before, but we wanted someone on our team who lived and breathed that market. It's also not because Seth [Brufsky] and myself could not learn the credits. We thought it better to go out and hire one of the best in the business." Hinman was at PIMCO for 10 years, where he ran several CDO and credit-derivative products. Prior to PIMCO he was at Merrill Lynch.
"The funds' focus is relative-value opportunities in corporate debt securities and related investments. At the moment the largest allocation is leveraged loans, but since inception the fund has also invested in both fixed and floating-rate high yield bonds, special situation debt investments--stressed, distressed and direct debt investments--and post-reorg equities," said Sachs. The fund has also maintained a short position in a credit index product to hedge against spread widening. "Now, with the addition of Hinman, we expect the fund to also become more active on both the long and short side of the investment-grade corporate credit markets."
To date the largest percentage of capital in the Ares Total Value Fund has been allocated to leveraged loans because "in our opinion they are the cheapest of the rich," Sachs said. "Corporate credit spreads have narrowed significantly over the past several years with the improvement in the U.S. economy. But given that most leveraged loans have a first priority security interest and are floating rate, and given the potential additional increases in interest rates, we believe that in general they offer the most relative value amongst U.S. corporate credit asset classes."
Ares has approximately $6.1 billion under management with a large number of CLO vehicles. Last November, the firm closed on the $650 million Ares Enhanced Loan Investment Strategy underwritten by J.P. Morgan. "With regard to CLOs, we are still comfortable investing in loans within CLO structures with our own capital and for our investors capital. Spreads on CLO liabilities are at, or near, all-time lows, with the triple-As in recent deals pricing between 25 and 28 basis points compared to 55 to 60 basis points two years ago. On the collateral side we recognize that spreads on leveraged loans have also narrowed meaningfully over the past several years, but given our current positive view of U.S. economic conditions for at least the remainder of 2005 we believe CLO transactions are still attractive on both an absolute and relative basis."
