Where Will Ares Capital Be in 3 Years?

Ares Capital (NASDAQ: ARCC) is the largest publically traded concern improvement institution (BDC). It makes indebtedness and equity investments successful mediate marketplace companies (those with $100 cardinal to $1 cardinal successful yearly revenue). These investments make involvement and dividend income to enactment the company's 9.5%-yielding dividend.

Here's a look astatine wherever the BDC appears to beryllium heading implicit the adjacent 3 years.

Ares Capital presently has $28.7 cardinal of superior invested crossed 587 portfolio companies, with the bulk of its portfolio (61%) being archetypal lien elder secured loans. That's up from $21.3 cardinal invested crossed 458 portfolio companies successful precocious 2022 (45% archetypal lien elder secured loans).

One of the company's hallmarks is its diversification. Ares Capital presently invests superior successful portfolio companies crossed 35 abstracted industries. That's much diversification than its peers, which put superior successful companies crossed an mean of 27 industries. Ares besides has overmuch little portfolio concentration. Its largest holding is 1.5% of its concern portfolio compared to 4.8% for the mean BDC. Meanwhile, its apical 10 holdings comprise 11.5% of its concern portfolio compared to 25.2% connected mean for its adjacent group.

Ares Capital is apt to proceed increasing and diversifying its portfolio successful the future. The institution made $3.9 cardinal of concern commitments during the 3rd 4th crossed 35 caller and 45 existing portfolio companies. It funded those investments by recycling capital from exited investments ($2.6 cardinal successful the quarter) and raising $1 cardinal of further indebtedness capital. Ares has fantabulous relationships with banks and organization superior providers, which should let it to proceed raising funds to turn its portfolio.

Middle-market companies are an underserved market. They're excessively ample for galore banks and excessively tiny for investment banks. That has enabled BDCs similar Ares Capital to supply these companies with the superior they request to money their operations and turn their businesses. The institution estimates that there's a $3 trillion accidental to supply loans to mediate marketplace companies.

Meanwhile, companies are remaining backstage for longer. As a result, much companies with implicit $1 cardinal successful yearly gross are relying connected non-traditional superior providers similar BDCs for their backing needs. This marketplace conception represents different $2.4 trillion accidental for Ares Capital.