Ares Co-President on Private Wealth's $500B Opportunity

In Brief:

Kipp deVeer, co-president of Ares Management, joined Ted Seides on Capital Allocators to discuss the seismic shift occurring as private wealth enters the alternatives market previously dominated by institutions. deVeer, whose firm manages $500 billion in assets, identifies a massive untapped opportunity where individual investors, particularly the mass affluent with $3-10 million in assets, are demanding access to private credit, real estate, and private equity strategies. He warns that while the potential is enormous—with every 1% allocation shift across the industry representing $500 billion in new investments—the alternative investment industry must grow thoughtfully with proper education to avoid mistakes that could undermine long-term confidence in these products.

Big Picture Drivers:

• Democratization: Private wealth portfolios hold only 2-5% in alternatives versus 20-50% for institutions, creating massive catch-up potential

• Market Maturation: Top platforms committed $110 billion to funds last year, twice the amount from major institutional investors

• Structural Innovation: New vehicles like interval funds and semi-liquid products make previously inaccessible strategies available to individual investors

• Global Expansion: International markets, particularly Europe and Asia, showing surprising demand growth

Key Topics Covered:

• Distribution Strategy: Ares scaled from 75 to 150 global team members focused on wealth channel education and relationship building

• Product Evolution: Industry moved beyond basic non-traded REITs and BDCs to diversified private equity, infrastructure, and credit strategies

• Market Concentration: Four to five firms now dominate the space, with Blackstone's early 60-65% market share becoming more distributed

• Liquidity Management: Semi-liquid structures require investor education about 20% annual redemption limits and quarterly liquidity windows

Key Insights:

• Market Timing: The convergence of negative returns in both stocks and bonds during 2021 accelerated wealthy individuals' search for alternative investment strategies beyond traditional 60-40 portfolios.

• Scale Economics: Ares expects roughly 20% of its 2025 capital raising to come from the wealth channel, representing a dramatic shift from zero focus just six years ago.

• Fee Standardization: Unlike institutional markets where fees are negotiated, wealth channel fees remain standardized across competitors with little pressure for reduction despite growing scale.

• Pro-cyclical Risk: Retail money flows in during good markets and out during bad ones, requiring managers to maintain balanced capital sources to avoid forced deployment at poor pricing.

• Geographic Opportunity: Europe delivered unexpectedly strong capital flows last year, while Asia represents the next major growth frontier for wealth channel expansion.

• Brand Building Challenge: Despite managing $500 billion, Ares still faces name recognition challenges compared to firms like Blackstone and KKR that have decades of front-page financial press coverage.

Memorable Quotes:

• "If you're an FA, you're going to say, back to my comment about I don't want to be 60% exposed to Blackstone, most of the FAs we talk to will say, I want three to five managers that have a pretty well curated set of products." - Kipp deVeer, explaining advisor diversification preferences

• "The race to the finish line comment was a belief has proven to be true, that if we got there and we really focused on it by putting people in the field, educating the RIAs and the FAs about Ares and our products, we could jump right up the leaderboard." - Kipp deVeer, on the strategic urgency of wealth channel expansion

• "Growth that's too fast with not enough education, that's just not good for the growth of this industry. It just needs to be smart growth where people understand and are excited, hopefully, right, about what they're getting access to." - Kipp deVeer, warning about industry risks

• "You wish you could convince retail to come in during bad markets, but it usually doesn't work that way." - Kipp deVeer, on the challenge of pro-cyclical retail flows

The Wrap:

The private wealth revolution in alternatives represents both the industry's greatest opportunity and its biggest risk. While the potential $500 billion in flows per percentage point of allocation shift could transform firm economics, success depends on thoughtful growth with proper investor education. The early winners are firms that moved quickly to build dedicated teams and relationships, but maintaining underwriting discipline amid pro-cyclical flows will determine whether this expansion creates lasting value or repeats past mistakes that damaged investor confidence.