Ares Strategic Income Fund: Investigating Claims

Are you concerned about your investment in Ares Strategic Income Fund? If so, the securities attorneys at The White Law Group may be able to help you by filing a FINRA Dispute Resolution claim against the brokerage firm that sold you the investment.    

Ares Strategic Income Fund’s Recent Financial Moves  

The Ares Strategic Income Fund, a non-listed business development company (BDC), has reportedly recently issued $700 million in 6.35% notes due in 2029 and entered into an interest rate swap agreement with Wells Fargo Bank, according to the DI Wire this week. This agreement allegedly allows the fund to swap its fixed interest rate of 6.35% for a floating rate based on the one-month secured overnight financing rate (SOFR) plus 2.208%. The swap will purportedly mature on August 15, 2029.  

The proceeds from the notes are allegedly intended to repay some of the fund’s outstanding debt, with the possibility of reborrowing for general corporate purposes, including investing in portfolio companies. Additionally, the BDC has reportedly amended its prospectus to increase the cap on upfront fees for its Class D shares from 1.5% to 2% and for its Class I shares from no specified cap to 2%.  

The fund reportedly primarily invests in senior secured, floating-rate loans to U.S. companies. As of April 30, 2024, it has invested in 343 portfolio companies with a total fair value of approximately $4.1 billion and has raised $3.1 billion through public and private offerings.  

Why This Could Be Bad News for Investors  

• Exposure to Variable Interest Rates: By engaging in the interest rate swap, the fund is exposed to variable interest rate risks. If the floating rates rise more than anticipated, it could lead to higher costs and reduced income for the fund, which may ultimately lower investor returns.  
• Higher Investment Costs: The increase in upfront fees means that a larger portion of investors’ capital will be used to cover fees rather than being invested, potentially diminishing the overall returns and making the fund less attractive.  
• Dependence on Debt Financing: The fund’s reliance on reborrowing and debt refinancing indicates a high level of leverage, which could be risky, especially if market conditions deteriorate or if the fund’s investments do not perform as expected. High leverage can amplify losses and increase financial instability.  
• Economic Uncertainty: Given the fund’s focus on senior secured, floating-rate loans, its performance is closely tied to economic conditions and interest rates. Any adverse changes in these factors could negatively impact the fund’s portfolio and, consequently, investor returns.  

 Business Development Company (BDC) are Complex Investments  

A Business Development Company (BDC) is a company that invests in small and mid-sized businesses. Investors can buy shares in a BDC, and the money from their investments is used to fund the businesses. In turn, investors can profit from dividends paid on their investments, or, possibly, the sale of their shares.    

Non-traded BDCs are complex, high-risk investments. They operate much the same way as non-traded REITs (Real Estate Investment Trusts), with high commissions, and a lack of liquidity.   

BDCs pool investor money and use those funds as capital to invest in various businesses. The goal of a BDC is to invest in small and medium-sized businesses and help sustain and develop growth in those underlying businesses. When those businesses are profitable, the BDC can be a strong investment. Additionally, certain BDCs offer a desirable tax structure for investors.     

However, “middle-market loans” are basically highly leveraged loans to private equity backed companies, and come with a large credit risk. When rising interest rates and inflation lead to a recessionary event BDCs, such as Ares Strategic Income Fund, may take a big hit.      

The White Law Group continues to investigate potential claims against the broker dealers that sold high risk investments, like Ares Strategic Income Fund to investors.    

How to Recover Investment Losses    

Broker dealers are required to perform adequate due diligence on any investment they recommend. They should also ensure that all recommendations are suitable for the investor. Recommendations should be appropriate given the investor’s age, risk tolerance, net worth, and investment experience.    

Broker dealers that fail to adequately disclose risks or make unsuitable investment recommendations can be held liable for investment losses in a FINRA arbitration claim.    

If you have suffered losses investing in Ares Strategic Income Fund, the securities attorneys at The White Law Group may be able to help you. Please call The White Law Group at 1-888-637-5510 for a free consultation.    

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and  Seattle, Washington.