The story of Ares Management Corporation (NYSE:ARES) begins in the rubble of one of Wall Street’s most spectacular collapses. When Drexel Burnham Lambert imploded in 1990 amid the Michael Milken junk bond scandal, it scattered thousands of employees across the financial industry. Among them was Tony Ressler, who served as senior vice president in Drexel’s high-yield bond department, working directly under Milken during the firm’s heyday.
While Drexel’s aggressive culture ultimately led to its destruction, the credit market innovations pioneered there would prove to have lasting value—particularly the insights about middle-market lending and alternative corporate finance that Milken’s team developed.
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Fast-forward to 2004, and my favorite alternative income stock was created. It's a great buy in its own right, but recently, it has started doing something very interesting.
This top income stock has begun investing in other income stocks within the same industry.
In 1997, Ressler teamed up with four partners, Michael Arougheti, David Kaplan, John H. Kissick, and Bennett Rosenthal, to found Ares Management with a clear focus on credit investing. The timing was perfect: banking industry consolidation was leaving middle-market companies underserved, creating opportunities for alternative lenders willing to build direct relationships with borrowers. Drawing on the credit expertise gained at Drexel, the founders positioned Ares to fill this gap with strategies spanning direct lending, high-yield bonds, and special situations investing.
From day one, Ares was designed as a credit-first platform, applying market insights from the Milken era to a more disciplined, institutionally-focused approach.
The firm’s breakthrough came in 2004 with the launch of Ares Capital Corporation (NASDAQ:ARCC), one of the first major Business Development Companies focused on direct lending to middle-market companies. This publicly traded vehicle provided permanent capital for credit investments while offering retail and institutional investors access to private credit returns.
Under the leadership of CEO Michael Arougheti, a veteran of middle-market lending at Indosuez Capital and RBC himself, Ares has systematically built one of the world’s largest private credit platforms since 2018. The firm expanded into Europe in 2007, added Asia Pacific operations, and continually innovated with new credit strategies, ranging from asset-based lending to structured products.
Ares Capital Corporation has become the cornerstone of the firm’s private credit empire and stands as the largest Business Development Company in the United States by market capitalization. ARCC specializes in providing financing for middle market acquisitions, recapitalizations, and leveraged buyouts, primarily targeting companies with revenues between $50 million and $2.5 billion.
The BDC structure allows ARCC to pass through substantially all of its income to shareholders while maintaining the flexibility to hold illiquid investments for extended periods. With approximately $25 billion in total assets and a diversified portfolio of over 400 companies, ARCC has paid consistent quarterly dividends since its inception, making it a cornerstone holding for income-focused investors seeking exposure to private credit markets.
Today, Ares has approximately $377 billion in credit assets under management, making it one of the dominant players in the private credit industry that barely existed when the firm was founded. The company has become a leading self-originating direct lender across the U.S., European, and Asia Pacific markets, providing financing solutions to thousands of middle-market companies that traditional banks increasingly avoid.
Through multiple market cycles, including the 2008 financial crisis and the 2020 pandemic, Ares’ credit portfolios have demonstrated the resilience that comes from senior secured positioning, direct borrower relationships, and disciplined underwriting, which is rooted in the Drexel playbook.
The success of Ares represents a remarkable transformation of the credit market innovations that Michael Milken pioneered at Drexel Burnham Lambert. While Drexel’s excesses led to its downfall, the fundamental insights into corporate credit markets and middle-market finance have proven enduringly valuable.
Under Arougheti’s leadership, Ares has evolved these concepts into a regulated, institutionalized platform that serves as a critical source of capital for the modern economy. For investors seeking exposure to private credit, one of the fastest-growing alternative asset classes, Ares offers a unique combination of deep historical expertise and global scale, built on the intellectual foundation laid during the junk bond revolution of the 1980s.
I am, and always have been, a big fan of Ares Capital. I consider it the cornerstone of a credit-based alternative income portfolio.
Given the fact that Ares is already a massive player in credit and operates the biggest DBC, I am fascinated by the fact that they are buying other BDCs for their clients and themselves.
According to the latest 13F filing with the SEC, there are several other BDCs Ares feels are worth buying around current levels:
Blue Owl Capital (NYSE:OBDC) stands out as the second-largest externally managed BDC with over $18 billion in total assets following its merger with OBDE in January 2025. What distinguishes OBDC from other BDCs is its massive scale and direct origination capabilities, facilitated through Blue Owl Credit’s experienced investment platform. This platform focuses predominantly on senior secured loans that are directly originated by Blue Owl Credit’s team of investment professionals. The company maintains a high-quality, diversified portfolio across 233 portfolio companies with an aggregate fair value of $16.9 billion as of Q2 2025. OBDC currently offers a compelling yield with a regular dividend of $0.37 and a supplemental dividend of $0.01, representing a 10.0% annualized yield.
The company trades at an attractive discount to NAV, making it appealing for income-focused investors seeking exposure to middle-market direct lending.
Barings BDC (NYSE:BBDC) differentiates itself through its affiliation with Barings, a leading global asset manager based in the Asia Pacific and a subsidiary of MassMutual, with $456+ billion in assets under management, sourcing differentiated opportunities. The company maintains an exceptional credit quality, with non-accruals at just 0.5% of the portfolio’s fair value, significantly below industry averages, demonstrating superior underwriting discipline. BBDC’s portfolio comprises $2.62 billion in investments, featuring strong coverage metrics, as net investment income of $29.8 million ($0.28 per share) fully covers its regular dividend.
BDC currently pays a quarterly cash dividend of $0.26 per share plus a special dividend of $0.05 per share, translating to approximately a 10-11% yield, making it attractive for investors seeking steady income with lower credit risk.
Goldman Sachs BDC (NYSE:GSBD) distinguishes itself through its integration with Goldman Sachs’ global investment banking and markets franchise, creating an “an unparalleled sourcing engine of investment opportunities across the credit spectrum.” This unique positioning allows GSBD to access deal flow that many other BDCs cannot, leveraging Goldman’s extensive corporate relationships and market presence. The company maintains a conservative approach with 97.4% in senior secured debt across 162 portfolio companies, totaling $3.8 billion in investments.
Despite some recent performance challenges, GSBD offers an attractive yield through its combination of dividends: a third quarter base dividend of $0.32, a special dividend of $0.16, and a second quarter supplemental dividend of $0.03 per share, resulting in an impressive yield exceeding 11%, supported by Goldman Sachs’ 11-year track record of consistent dividend payments and strong platform capabilities in volatile markets.
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