When inflation and interest rates spiked in 2021, many investors hypothesized that markets would experience a difficult but relatively short-lived period of macroeconomic and valuation adjustments – reality has proved otherwise. Short-term U.S. interest rates are only down 1% from their 2023 peak driven by lingering inflation concerns, and longer-dated securities have stayed high amid higher budget deficits and a ballooning federal debt balance.1
This prolonged period of higher rates has upended the playbook for many private equity sponsors. They had hoped to weather the storm long enough to see rates decline, which could allow them to sell their companies at favorable multiples and return capital to their investors. Instead, private equity sponsors continue to face persistent market headwinds and are sitting on a record inventory of $3.7 trillion of unrealized private equity portfolio companies.2
Compressed multiples, higher debt-service costs, and an overall challenged market for exits have created a gridlock for the private equity industry. This has resulted in many sponsors holding on to their portfolio companies for longer than the typical four-to-six years, leading to an increasing number of aged assets. Nearly 1 in 3 U.S. buyouts have been held in PE funds for at least 5 years – nearly double the proportion in 2019.
Figure 1: Active U.S. Buyout-Backed Companies Held More Than 5 Years3
Rather than sell assets at a discount, which would drag on performance, private equity sponsors are increasingly turning to flexible and customized capital solutions offered by opportunistic credit managers. Through a mixture of debt, equity and other structured approaches, opportunistic credit strategies have been helping companies term out capital structures, stimulate late-investment growth and return capital through dividends or partial company sales.
“Opportunistic credit as an asset class has been around for a long time, but we are now seeing a record scale of demand for bespoke credit solutions converging with the increasing adoption of opportunistic credit as a repeatable and durable solution” said Aaron Rosen, Co-Head of Ares Opportunistic Credit.
Capitalizing on Market Conditions
Another key aspect in the evolution of opportunistic credit is its risk profile. Instead of the 2008 Great Financial Crisis playbook – distressed assets in need of liquidity – opportunistic credit funds today can focus on borrowers who have strong and profitable businesses but are managing through overleverage or capital constraints.
“We’re talking about high-quality underlying assets, often with strong cash flows and a healthy outlook. But they need flexible liquidity solutions they can’t get from a traditional bank, and their underlying capital structure may be more complex than what a direct lender can handle. That’s where opportunistic credit managers can flex their tactical, specialized skill sets,” said Craig Synder, Co-Head of Ares Opportunistic Credit.
Here are five defining features of the opportunistic credit asset class:
- Flexible Capital Solutions: Opportunistic credit can offer a broader possibility of financing instruments, including secured and/or unsecured debt, delayed-draw facilities, preferred equity (regular or convertible), common equity, and warrants. This diverse toolkit serves companies seeking to customize their capital structures to the specific needs of a business, whether for organic growth, mergers & acquisitions, navigating cyclical tides, or right-sizing balance sheets.
- Broad Applicability: A critical distinction of opportunistic credit is its focus on a broad array of situational opportunities. While it can involve distressed companies, the strategy more often suits businesses facing idiosyncratic complexities, such as a fragmented ownership structure, an urgent need for capital to play defense (e.g., refinancings) or offense (e.g., growth capital), or one that’s in the middle of a transformational strategy. The emphasis tends to be on helping managers solve a specific problem with a creative financial solution, not simply profiting from a company's imminent failure.
- Bridging the Financing Gap: Increasingly, the needs of borrowers managing through complexity or overleverage fall between traditional senior private debt and private equity. Opportunistic credit managers typically solve these needs by using structured investments with the bulk of return coming from contractual interest with potential for equity upside. Opportunistic credit solutions tend to go deeper into capital structures than traditional direct lending solutions but are not as dilutive as typical private equity solutions (e.g., a minority equity sale to another private equity sponsor).
- Deep Underwriting and Industry Expertise: The complex nature of these investments makes rigorous and deep underwriting paramount. Opportunistic credit managers conduct extensive due diligence on both the borrower and its subsector ecosystem, yielding a granular analysis that allows them to better understand the underlying value and risks. This enables them to craft solutions that seek to protect their capital while providing borrowers with flexibility.
- Adding Value After Investment: It is common for opportunistic credit transactions to include some element of equity upside and often even participation in the company’s board of directors. This allows opportunistic credit managers to assist private equity sponsors in the value-creation activities of the business and to be in a position to meet future capital needs of the business.
Ares Opportunistic Credit
We believe being a publicly traded, global alternative investment manager with $572 billion of assets under management of which $377 billion is in the Credit Group as of March 31, 20254 allows us to serve our sponsor and company clients in several key areas, lending a breadth and depth of experience in this specialized space. Ares’ Opportunistic Credit Team has invested over $15 billion since 2017, allowing the team to navigate complex financial situations with agility and precision.
Additionally, Ares Opportunistic Credit benefits from being on a platform that has developed approximately 1,135 sponsor relationships globally, and we believe Ares is one of the largest self-originating direct lenders to the North American and European middle markets by team size, footprint and depth of experience. Given the added importance of relationship lending for companies that are working through complexity and/or overleverage, we believe Ares’ longstanding sponsor relationships enhance trust between the Opportunistic Credit Team and its sponsor clients. The Opportunistic Credit Team has 36 dedicated investment professionals across Los Angeles, New York and London, as of September 18, 2025.