In this articleARESFollow your favorite stocksCREATE FREE ACCOUNTA version of this article appeared in CNBC’s Inside Alts newsletter, a guide to the fast-growing world of alternative investments, from private equity and private credit to hedge funds and venture capital. Sign up to receive future editions, straight to your inbox.At Ares Management’s analyst day last month, the alternative asset manager quietly bumped up its three-year fundraising targets by 25%.CEO Michael Arougheti told CNBC the change was due to better-than-expected momentum among individual, wealthy investors.A recent survey by State Street found that the “retail revolution” will drive more than half of the private market flows in the next few years, a seismic shift from traditional sources of fundraising, which historically comprised institutional investors. Ares has been one of the key beneficiaries of the trend, having offered different types of vehicles for retail for more than two decades.”What’s changed now is the quality of the product, the scale of the product – the investment that we’ve made in servicing the products,” Arougheti said in an interview.Ares has 185 people in 10 offices globally who are working on product development and client education, he said. The firm already has more than $50 billion in assets under management from semiliquid vehicles targeted at retail. Arougheti said Ares’ market share of the retail segment is approaching 10%. Get Inside Alts directly to your inboxThe Inside Alts newsletter with Robert Frank and Leslie Picker is your guide to the fast-growing world of alternative investments.Subscribe here to get access today.As the momentum for retail allocation in alternatives builds, some have cautioned that managers will funnel weaker deals toward individual investors, while reserving better assets for institutional investors. A recent paper by Harvard University found that there’s a performance disadvantage among funds sold more broadly, which the author said, “raises the possibility that products with poor performance are being channeled to investors who are less wealthy and less financially sophisticated.” “This narrative of weaker products being reserved for retail is just not true,” Arougheti said, adding that only the largest managers with the “highest quality” deals have enough scale to build their wealth platforms.”We actually allocate our investments based on available capital, and so a lot of the investments that are finding their way into our institutional client portfolios are also finding their way into our wealth product,” Arougheti said. “And so they’re growing together.”Ares had about $572 billion in assets under management as of the end of June, with two-thirds in credit. The firm has investments in more than 3,000 middle-market companies.[embedded content]As for the value proposition – why individual investors would be so interested in alternatives right now, especially when public equities have returned so much in recent years – Arougheti said he thinks it’s a response to the increasing concentration in the liquid securities. “It’s actually pretty difficult to navigate a diversified portfolio in the public markets,” Arougheti said. “They’re looking for diversified and noncorrelated equity exposure, so private equity, real estate, etc.” The retail revolution that Ares is so bullish on doesn’t even account for the potential opening up of 401(k) retirement accounts for greater allocation toward alternatives, which could bolster the firm’s AUM targets even more. But Arougheti was somewhat skeptical about how quickly this market would move the needle for the industry. “I actually don’t think we’ll see change in beha …
