Private Credit Will Consolidate Harder Than Private Equity Because Credit Is an Infrastructure Business, Ares' Holsinger Argues

Read time: 4 minutes

What's New

Private credit is consolidating toward a handful of scaled platforms, and the consolidation will run further than in private equity because credit runs on systems, velocity, and balance sheet access rather than a small deal team doing three deals a year. Joel Holsinger, Co-Head of Ares Alternative Credit, argues this in a podcast on How I Invest. Banks already narrow which managers they lend to; large counterparties already call the four or five groups that can write very large flexible checks. The winners play in the gaps between the boxes that constrain 95% or more of the world's capital. Allocators choosing credit managers should weigh flexibility across asset classes and the ability to get the first call as heavily as track record.

Why It Matters

The argument challenges the view that private credit is a fragmenting market where niche specialists in litigation finance, aircraft leasing, or royalties hold the relative-value edge. Holsinger says those single-strategy funds see relative value with blinders on, while a pooled flexible vehicle can compare across sectors and refuse risk that is mispriced. Mid-sized lenders and single-sector ABF funds are on the other side of the trade. Holsinger runs a scaled platform inside a roughly $220 billion firm, so the consolidation thesis serves Ares. He also frames data centers, the largest current use of that scale, as boring net-lease credit rather than equity upside.

Big Picture Drivers

• Credit is infrastructure, private equity is judgment: Direct lending and asset-based finance depend on systems, scale, and liability providers. Holsinger expects more consolidation in credit than in buyout for that reason.

• Capital lives in boxes: Banks, insurers, and nearly all funds are constrained by rating, region, or sector. Relative value is supply and demand, and it appears where flexible capital can go and boxed capital cannot.

• Data centers are net-lease credit at scale: A built data center leased for 15 to 20 years to an investment-grade counterparty like Meta, Google, or Amazon produces contractual cash on cash. Ares invests in portfolios of them, and in the energy build catching up behind them, with deal sizes far above the hundreds of millions common five years ago.

• Diversity and contractual cash flow are the protection: Everything in ABF is a portfolio of loans, leases, receivables, or royalties. Every memo now carries a "visualize the cash flows" page showing how much return is contractual versus terminal value, because terminal-value-heavy investments depend entirely on rates and multiples.

• Risk is exponential, priced linear: Two second-lien positions ending at 6x EBITDA, one attaching at 2x and one at 5x, price within 50 basis points of each other. Ares shows attach and detach points on every cap stack so the team sees the unit of risk before debating valuation.

• Reputation compounds like capital: In illiquid markets, the deal is art, and the first call comes to the party whose word holds. The goal is the "it's yours if" call from a counterparty choosing between two or three bidders, even when Ares is technically more expensive.

By The Numbers

• 4 or 5: Groups Holsinger says can write very large, flexible checks on today's data center and energy transactions.

• 95%+: Share of funds worldwide that he estimates operate inside a tightly defined box of region, sector, or rating.

• 15 to 20 years: Lease terms with investment-grade tenants that make a data center a credit asset.

• ~50 basis points: The pricing gap the market assigns to two second-lien tranches with very different attachment points.

• $50 million+: Charitable dollars already accrued by the Pathfinder funds from 5 to 10% of promote, with 15 other groups now giving at least 5% of promote through Promote Giving.

• 15 years: The ABF track record Holsinger describes as years of finding holes in the infrastructure and fixing them.

Key Trends to Watch

• Bank leverage lines as the consolidation lever: Watch which credit managers keep subscription and asset-level financing as banks narrow relationships. Loss of liability access removes a manager from the large-check set.

• Energy following data centers: Holsinger sees the same scale of capital need arriving in renewables and natural gas behind the compute build. The next large-portfolio financings will be power, not just leased shells.

• Multi-strategy ABF pools displacing single-strategy funds: Most managers have moved toward the pooled, flexible model. Watch whether litigation-finance or aircraft-only vehicles keep raising at prior scale.

• Terminal-value exposure across private markets: As more allocators adopt cash flow visualization, expect harder questions to venture and buyout GPs about how much of the promised return depends on exit multiples.

Memorable Quotes

• "Your best sourcing comes from branding, which is being established and known that if you say you're going to do X, you're going to do it." Reputation as the sourcing engine in a market where sophisticated counterparties choose whom to call.

• "All capital in this world is in a box." The constraint that flexible, scaled capital exploits.

• "Capital follows performance. If you focus on the capital, performance drops. You focus on the performance. Capital comes." The Ares chairman's line Holsinger uses to keep the team off AUM as a goal.

• "The market prices linear off honestly because they're sitting there pricing to the box that they end up being." Why attachment points, not headline yields, define risk.

The Wrap

The thesis holds if the number of credit managers able to write multi-billion flexible checks keeps shrinking, if banks continue to concentrate leverage relationships, and if data center and energy financings keep landing with the same few platforms at contractual returns that survive a rate or multiple reset. It also holds if pooled ABF vehicles keep taking share from single-strategy funds on relative-value grounds. It fails if hyperscaler lease demand cools and leaves diversified data center portfolios exposed to terminal value after all, or if mid-sized specialists prove that niche expertise beats cross-sector flexibility in a credit downturn. The next 3 to 5 years, spanning the AI capex cycle and the first real credit stress since the ABF track record began, will show whether scale was the moat.