By Ian Salisbury

Ares Management may be on the verge of inclusion in the S&P 500. That could mean a buying opportunity for anyone who willing to make a big bet on potentially overstretched private credit.

On Friday, the S&P 500 is expected to announce the latest changes to its roster. As Barron's recently noted , Ares appears to be on the shortlist of potential additions. Stocks frequently get a bump after being added by funds that seek to track the index, not to mention the publicity.

Shares of Ares, a private asset-management company with about $600 billion in assets, are currently on sale. They are down about 9.7% this year, alongside those of larger rivals like KKR and Blackstone.

Private asset managers are investment firms, many of which began as private-equity partnerships, that now operate as publicly traded companies that oversee a range of holdings outside of traditional stock and bond markets. These include private equity, private credit, real estate, infrastructure, and more.

Ares is richly valued at 25 times forward earnings, compared with an average of about 17 times for other alternative asset managers. Still, that price-earnings ratio has fallen from about 32 times at the start of the year, according to FactSet data. That is because although Ares' share price is down -- it has dropped nearly 20% from its record high on Jan. 31 -- Wall Street analysts are still forecasting earnings growth of nearly 30% in 2026.

Like its rivals, Ares has been dogged by worries about the private-credit sector. Ares' private-credit assets amount to $390 billion, roughly two-thirds of its total assets under management. At Blackstone, private credit is about one-third of total assets, while the number at KKR is less than half.

The private-credit space has been one of the fastest growing in the private-assets business in recent years, thanks to meager yields on traditional bonds and newfound popularity among wealthy investors. The sector's long-term growth prospects remain bright.

Earlier this year, the Trump administration made moves to help incorporate private assets into 401(k)s, unlocking trillions in potential investment dollars for firms to chase.

But there are signs of trouble too. This fall, bankruptcies at auto sector companies First Brands and Tricolor Holdings sparked widespread worry about defaults even though these companies had borrowed through traditional bank channels. More recently, Blue Owl, another private-credit specialist, had to abandon plans to merge two of its business development companies after public pushback.

Some market watchers have been sounding alarms. "Private credit is in the 2nd inning of a meaningful blowup (NOT 2008, but a cousin)," wrote the Bear Traps Report on Tuesday. "Retail investors are holding the bag."

But not everyone is worried. On Monday, Goldman Sachs added Ares to its Conviction List of recommended stocks. The investment bank previously argued this year's sell-off in private-asset managers is a buy-the-dip opportunity, given that private-loan default rates were still well within historical norms.

Last month, Ares CEO Michael J. Arougheti all but told nervous markets to bring it on.

"Looking at the bigger picture, we believe that Ares would benefit if a credit cycle were to occur as we have in past cycles," he said on the company's Nov. 3 earning call. Arougheti added the company emerged from the 2008-2009 financial crisis and 2020-2021 Covid scare stronger than before, after managing to put up better numbers than its peers.

"This outperformance has enabled us to be front-footed and accelerate our growth during these periods," he added.

While Ares declined to comment for this article, Arougheti also said on the call that the company was seeing strong demand for both its private-credit and other investment products.

In the long run, Arougheti may be right, but given fragile-looking credit markets and Ares' high P/E ratio, investors could be in for a lot more pain in the meantime.

Write to Ian Salisbury at ian.salisbury@barrons.com

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December 03, 2025 02:30 ET (07:30 GMT)

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