Ares Management, one of the major US-based alternative asset managers, has decided to scale down an ambitious private credit vehicle after investors refused to accept the valuations proposed for the assets to be transferred. The reconstruction of events comes from a Financial Times report which, citing sources close to the transaction, says the initial aim was to complete a continuation fund of about €1 billion, but the initiative failed to obtain subscriber approval on the prices sought.
The case highlights the growing and contested role of continuation funds in the strategies of large managers. A continuation fund is a tool that allows a manager to transfer illiquid assets from a maturing fund into a new vehicle, offering liquidity to exiting investors while keeping investors who prefer a longer time horizon invested in the assets. These structures have become common in private equity and private credit, where exit timings can be longer and secondary markets less deep.
According to the FT, negotiations broke down precisely over the determination of the price for the assets to be transferred. Investors considered the proposed valuations too high relative to perceived market levels or current risks, and did not approve the plan as presented by the manager. Details on the specific assets included in the vehicle and on the new size agreed after the scaling down have not been made public.
The dispute over valuations reflects a broader problem in the private credit market: limited transparency and complexity in valuing loans that are not publicly traded. In recent years private credit has attracted significant capital thanks to yields above public debt and the search for diversification, but rising interest rates and economic slowdown have made price estimates harder and increased caution among institutional investors.
For a manager like Ares, which has built significant scale in alternative strategies, failing to secure investor consent for an operation of this nature is material both operationally and reputationally. A successful deal would have allowed the group to offer liquidity solutions to investors seeking to exit while retaining positions deemed still value-accretive; the scaling down instead suggests expectations on returns and exit prices will need to be revised.
From the investors’ side (the limited partners), the decision to oppose the proposed valuations signals greater assertiveness in the governance of alternative funds. In recent years some institutional investors have strengthened their control mechanisms, using advisory committees, requesting external valuation procedures or imposing stricter clauses on intra-fund transfers. Choosing not to approve a valuation judged generous is consistent with a trend toward tighter price discipline to protect committed capital.
The secondary market and continuation activity could be affected by this increased caution: if institutional buyers demand larger discounts or are reluctant to finance transfers based on manager valuations, exiting funds may be forced to accept lower prices, extend holding periods or seek alternative buyers. This can lead to higher transaction costs and greater difficulty for managers in structuring solutions aligned with the original fund objectives.
For Ares the issue sits within a competitive context in which large operators seek to monetize positions while preserving relationships with long-standing subscribers. Success in managing continuation transactions depends both on persuading investors of the appropriateness of valuations and on the availability of third-party capital willing to acquire such assets on agreed terms. Failure to converge on these elements forces a rethink of exit strategy.
On the regulatory and market fronts, episodes like this strengthen calls for greater standardisation in valuation methodologies for alternative assets and for enhanced disclosure to investors. Authorities and industry associations are observing the rise of continuation funds, and increased focus on pricing and governance could translate into more uniform practices or guidelines that reduce discretionary leeway in value determination.
There are, however, limits to the information available: the Financial Times is so far the only outlet to report details of the transaction and not all terms have been disclosed. It is not known, for example, by how much the vehicle was reduced from the initial figure nor which specific assets are in dispute. It is also unclear whether Ares will re-offer a solution with different prices or seek third-party buyers in the secondary market.
The episode nevertheless has broader symbolic significance: it underlines the increasingly sharp tensions between managers and investors over how value is realised in private markets. In a period of high rates and reevaluated return expectations, managers’ ability to align valuations and investor expectations will become crucial for future fundraising and for maintaining investor relationships. For now, the Ares case remains a wake-up call about the need for greater transparency and price discipline that reflects changed market conditions.