Ares strategy ‘links investing to purpose’ with 5-10% of profits donated to charity

That’s the pitch for Ares Alternative Credit, a private asset-based credit strategy managing a family of funds called Pathfinder that’s raised USD 15bn in commitments from LPs. The charitable pledge has already accrued more than USD 25m of potential donations as of June 2024.

The move is a novel way of tying investing to social purpose. Distinct from ESG or impact investing, the Pathfinder approach marries fund performance with charitable giving. The better the Ares Alternative Credit team drives return for investors, the more it can give back to good causes.

“Our approach aligns the love of investing along with a greater purpose. From a culture standpoint, I believe it’s been one of the best things I’ve ever been part of because our team has another level of meaning tied to what we do every day,” said Holsinger.

The idea for a fund with a charitable tie-in came to Holsinger in Dharavi in Mumbai, India. At an inflection point in his life and considering a new chapter in his career, Holsinger went on one of his first trips to India with Path Global Health, which focuses on supporting malaria, tuberculosis and HIV programmes.

Upon returning, he pondered how he could make a difference. What if he started an impact fund? Or got more involved in charities? Holsinger came up with the idea of doing both.

First, he resigned from his previous employer. Then he put in a call to Mike Arougheti, the CEO of Ares, and pitched the idea. Arougheti’s response: done. The two shook hands on the deal and the Pathfinder charitable tie-in was born. Ares and Pathfinder’s portfolio managers would pledge to donate at least 5-10% of the carried interest profits from the funds to global health and educational charities.

As structured, there was the potential to generate between USD 10m and USD 20m for every USD 1bn of capital that earns a 1.5x to 2.0x multiple in the closed-end Pathfinder funds.

The first launch was for the Pathfinder fund, which closed in 2021 at USD 3.7bn in commitments, far exceeding the two billion dollar target. More vehicles have followed.

These funds have been transformative for Ares. “We think it’s had an impact on the broader culture at Ares. I’ve talked to our leadership and other portfolio managers, and they’ve said that our charitable tie-in has changed their own views of giving,” said Holsinger. “It allows you to empower yourself, to make it part of your everyday work.”

And it’s not just producing monetary donations. Team members are also making personal commitments to the charitable tie-in. They have the opportunity to engage with the charities and have already met more than 40 to date. Some have visited India to tour with global health and education charities — paid for by Ares but on their own time off. They expect to soon announce their first grants to four charities.

Besides co-heading the alternative credit team and assisting with the charity component, Holsinger is also busy proselytising to others on Wall Street and the investing world. The reception so far has been positive.

“We’ve seen ripple effects, with many people showing an interest in trying to emulate our approach,” he said. “Hopefully, this translates into greater adoption across the alternatives industry, because we think there’s so much opportunity to build stronger cultures of giving and philanthropy throughout the investment world. This could apply to private equity and to venture capital. It could apply to any start-up.”