By Luis Garcia and Katherine Hamilton

Ares Management expects potential artificial-intelligence-led disruption of software companies to create investment opportunities for the credit-focused asset manager while having little effect on its portfolio.

"Any time there is a material disruption in any industry, there's always two sides of the coin," Chief Executive Michael Arougheti said Thursday during a call with analysts to discuss fourth-quarter results.

He referred to a selloff in software company stocks largely driven by investor fears that AI systems can render many applications and services obsolete. Ares and other large, publicly traded alternative asset managers, which typically back software companies, also have seen their share prices fall sharply in recent days.

Arougheti's comments around midday Thursday did little to arrest a slide in Ares shares, which were down about 11% on the day and about 19% for the week. The firm led decliners among listed U.S. private-investment managers for both periods.

Software companies that lose value or find it difficult to attract new investors can become investment targets for Ares strategies that focus on making high-yield loans or on acquiring secondhand stakes in the funds of buyout firms that have backed the businesses, Arougheti indicated.

"Our opportunistic credit and secondaries business should see more investment opportunities, which provides a natural hedge," he said.

Ares expects to accelerate its dealmaking in 2026 after deploying a record $145.8 billion last year, up 37% from 2024, Arougheti said. He noted that the firm ended December with $156 billion in dry powder, or capital available to invest, after raising a record $113.2 billion last year, including $35.9 billion in the fourth quarter alone.

The fresh capital helped lift the firm's total assets 29% to $622.5 billion, with about two-thirds of that dedicated to credit strategies.

"I don't perceive that this disruption is going to have a meaningful impact in any way on aggregate origination volumes," Arougheti said about AI and new investments. "Our pipeline across the entirety of what we do is up at record levels right now."

The firm's investments in software companies over the years have reflected the sector's expansion but remain a small share of its overall holdings at just about 6% of total assets and less than 9% of its private-credit investments, according to Arougheti.

The firm favors software makers whose products are "real entrenched enterprise systems" rather than more disruption-prone "digital content creation or data analytics and visualization" tools, Arougheti said.

He also pointed out that the firm has made few investments in software companies that rely on subscription-based annual recurring revenue, where many other firms have focused. Many businesses that rely on ARR are now deemed particularly vulnerable to AI disruption.

"It is interesting to see how the markets are thinking about software companies as all being equal," Arougheti said.

Ares expects to benefit from the expansion of AI through rising bets in digital infrastructure, Arougheti added. Last year, the firm wrapped up its first fund specifically to back data-center development, closing it with $2.4 billion. Ares's real-assets strategies managed $139.1 billion at the end of December, 85% more than a year earlier.

"Although data-center exposure is a relatively small component of our current [assets], at just under 2%, we expect digital infrastructure to be a key contributor to our business in 2026 and beyond," he said.

The firm's after-tax realized income, or cash that can be returned to shareholders, rose about 21% to $529.1 million, or $1.45 a share, in last year's fourth quarter compared with the year-earlier period. Fee-related earnings climbed 33% to $527.7 million.

Net income plunged 69% to $54.2 million while revenue rose 20% to $1.5 billion.

Write to Luis Garcia at luis.garcia@wsj.com and Katherine Hamilton at katherine.hamilton@wsj.com

(END) Dow Jones Newswires

February 05, 2026 16:18 ET (21:18 GMT)

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