Ares Management abandoned its effort to close a €1 billion continuation fund after investors refused to accept the firm's asset pricing, marking one of the year's most visible valuation standoffs in private credit secondaries. The vehicle, intended to roll existing direct lending positions into a new structure with fresh capital, collapsed in March when limited partners declined to validate Ares's marks on a portfolio the firm had originated and held since 2021.
The breakdown centers on a €780 million tranche of mid-market corporate loans originated between late 2020 and mid-2022, when spreads were tight and covenant packages light. Ares pitched the continuation fund at a 4.2 percent discount to par, citing stable underlying credit performance and minimal defaults across the book. Three institutional investors who saw the dataroom told counterparties the actual discount should exceed 11 percent, pointing to widening credit spreads, refinancing risk in 2026, and comparable secondary trades clearing at deeper discounts in February. One European pension fund walked after Ares declined to adjust pricing by more than 80 basis points. The deal structure required 75 percent LP approval to proceed; Ares secured 61 percent.
The failure exposes a structural tension in private credit as the asset class matures. Continuation funds allow GPs to retain high-performing assets while offering LPs partial liquidity, but they require agreement on fair value for illiquid loans with no public comparables. When the GP is also the sole price-maker—and stands to earn fresh management fees on the new vehicle—LPs increasingly demand independent valuation or market-tested pricing. Ares, which manages $464 billion across credit strategies, has completed six continuation funds since 2019 without pricing disputes reaching this threshold. The March breakdown suggests LPs have recalibrated their tolerance for manager-led repricing, particularly in direct lending where defaults remain subdued but forward credit metrics have deteriorated. Allocators note that Ares's book includes €210 million in floating-rate loans to leveraged companies facing refinancing walls in 2026, a cohort where secondary bids have dropped 900 basis points since January.
Operators and allocators should watch three follow-on developments. First, whether Ares attempts a restructured continuation fund in Q2 with adjusted pricing or independent third-party valuation—several LPs indicated willingness to re-engage at a 9 percent discount. Second, how other private credit managers with large 2020-2022 vintage portfolios price upcoming continuation vehicles, as this breakdown sets a de facto LP negotiating floor. Third, whether secondary liquidity providers step in to offer direct LP portfolio sales at discounts steeper than continuation fund economics, creating a shadow pricing mechanism Ares and peers cannot ignore. Goldman Sachs and Blackstone's credit secondaries desks have already fielded four inquiries from Ares LPs seeking bids on their fund stakes since the continuation vehicle stalled.
Ares holds $87 billion in direct lending AUM, with $19 billion in commitments raised in 2024 alone. The firm's ability to deploy that capital depends partly on recycling older vintages through continuation structures. A sustained pricing impasse forces either extended hold periods or deeper discounts that compress IRRs and complicate fundraising for successor vehicles.
The takeaway
Private credit's continuation-fund playbook hits a valuation wall as LPs reject manager-set pricing on illiquid loan books.
Editorial & Disclosure Notice: This article was written with artificial intelligence from public sources and is published without individual human review. Artificial intelligence and other digital tools are also used for research, analysis, editing, formatting, and production. Errors, omissions, outdated information, or inaccuracies may occur. References to companies, brands, products, services, organizations, or individuals are for informational and editorial purposes and do not imply endorsement, sponsorship, affiliation, partnership, or approval unless expressly stated. All trademarks and other intellectual property remain the property of their respective owners. Opinions, analysis, estimates, and commentary are informational only and should not be construed as financial, investment, legal, tax, medical, procurement, or other professional advice. Information may be corrected, clarified, or updated after publication. Corrections or removal requests: jenny@pops4.com.
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