July 11, 2016 - 12:41 PM EDT
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Ares Energy Funds Underperformance Exacerbated by Failed Kayne Anderson Merger, Reports UNITE HERE

Merger collapse costs Ares amidst slow EIF V fundraising, raising questions about the firm’s energy investments.

In a report published today, UNITE HERE examines the persistent underperformance of Ares Management in the energy sector, slow fundraising for Ares Energy Investors Fund (EIF) V, and the costs of the failed merger with energy-focused investment firm Kayne Anderson.

A copy of the report is available at pecloserlook.org.

The report raises several concerns, including:

  • Ares EIF III and IV have generated net returns since inception of 5.9% and 12.4%, respectively, well below Ares’ target of 15-17%.
  • The collapse of the proposed merger with Kayne Anderson in October 2015 left Ares with $51.3 million in transaction-related expenses and an obligation to invest $150 million in Kayne Energy Funds.
  • Although EIF V was launched in January 2015, no capital was raised until the fourth quarter, after the Kayne merger collapse. EIF V raised $371 million by year-end - or roughly $34 million per month—slower than Kayne Anderson Energy Fund VII, Apollo Natural Resources Fund II, EnerVest Energy Institutional Fund XIV, and EnCap Energy Capital Fund X, which were raised over a similar period.

“Given the anticipated benefits of the merger to Ares energy portfolio, how will its collapse impact the performance of Ares energy and infrastructure investments?” asked UNITE HERE research analyst Marcos Feldman.

In January 2015 Ares acquired Energy Investors Funds and launched its fifth power private equity fund, EIF V, which aims to raise $2-3 billion. The proposed $2.55 billion merger with energy specialist Kayne Anderson was called off in October 2015 “after the buyout groups disagreed on how to combine their operations amid the oil prices crash,” according to the Financial Times.

This past December Morningstar noted that “the additions of AREA and Energy Investor Funds added about $10 billion in real estate and energy AUM to Ares, but the profitability contributions to Ares have been limited at this point.”

Marcos Feldman, 872-444-0022
[email protected]

Source: Business Wire (July 11, 2016 - 12:41 PM EDT)

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