Ares Management is raising a hedge fund that will consist of loans, bonds and special situation assets, in an attempt to capture the billions of dollars that are being allocated to the hedge fund sector. "The way pension funds and endowments are trying to access [the market] is through fund-of funds," said a source.
Mark Smith , the one-time CEO of ING Capital Advisors who left the firm last January, was recently hired by Ares and is spearheading the effort. Smith referred calls to a spokesman, who said he is a consultant acting as director of marketing with a focus on non-CDO products. "Because Ares has an existing and well-established client base in CDOs, Mark was hired to expand our frontiers. We do not wish to name specific funds for which he is marketing, but there are several in various states of development," the spokesman added. Ares has $4 billion in assets under management.
There are advantages to a hedge fund that a CDO does not provide to a certain investor base, explained a source. Hedge funds typically offer liquidity through shorter lock-ups, whereas investing in CDO equity offers less liquidity, he explained. Also, a hedge fund can take a long/short strategy, whereas a CDO is more constrained. In theory, there will be the opportunity to short loans through SAMI, a credit derivatives index being offered by Credit Suisse First Boston (LMW, 8/19), but the Ares hedge fund will include bonds, which are much easier to short, he noted. Alcentra Asset Management also launched a U.S. hedge fund late last year that it described as innovative. The fund, called Avila, is mainly par loans and is designed to provide investors with an alternative to CDO products.
The source declined to comment on how big the Ares fund would be. Ares is also pursuing a CLO called Ares VIII that is in the marketing phase and the Los Angeles-based firm has raised a middle-market private equity fund. On the personnel side, Christopher Jacobs , who is the trader for all of Ares' funds, will now focus on special situations. Last October, Ares brought on board Laura Rogers to be a trader. Previously she was a v.p. with Robertson Stephens .