Investment management company Vulcan Value Partners recently released its first-quarter 2026 investor letter. A copy of the letter can be downloaded here. The firm focuses on improving long-term returns and lowering risk over short-term results. In the quarter, the Large Cap Composite (Net) returned -14.1%, the Small Cap Composite (Net) returned -6.8%, the Focus Composite (Net) returned -19.1%, the Focus Plus Composite (Net) returned -19.1% as well as the All-Cap Composite (Net) returned -13.5%. Throughout 2025 and escalating to the first quarter of 2026, the market is experiencing heightened volatility related to AI’s potential, leading to mispricing of some strong companies. The current market turbulence presents opportunities for long-term investors willing to accept short-term volatility in stable-valued companies and improve the margin of safety. The letter identified businesses into three groups with perceived /real AI disruption risk: Software, Alternative Asset Managers, and indirectly impacted businesses. The firm highlights that its investment strategy aims to leverage this volatility to reduce risk and increase returns in the long term. In addition, please check the Firm’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Vulcan Value Partners identified Ares Management Corporation (NYSE:ARES) as a material detractor from performance. Founded in 1997, Ares Management Corporation (NYSE:ARES) is a leading alternative asset manager. On April 21, 2026, Ares Management Corporation (NYSE:ARES) closed at $119.84 per share. One-month return of Ares Management Corporation (NYSE:ARES) was 12.53%, and its shares lost 17.89% over the past 52 weeks. Ares Management Corporation (NYSE:ARES) has a market capitalization of $39.66 billion.
Vulcan Value Partners stated the following regarding Ares Management Corporation (NYSE:ARES) in its Q1 2026 investor letter:
“Ares Management Corporation (NYSE:ARES) is an alternative asset manager widely considered to be the leading private credit provider globally. Its value has compounded at double digit rates while we have owned it. Its stock price declined 6.2% last year and 31.6% during the first quarter on AI related fears. Specifically, bears are worried about its exposure to software companies and about clients allocating capital away from ARES because of AI related fears about that same software exposure. Let us dissect both related arguments.
First, ARES exposure to software is a relatively small proportion of its portfolio. Second, its exposure is in credit, so ARES has the most senior position if the companies begin to struggle. Their loan to value ratio is approximately 37%. The companies are not struggling, and default rates are close to zero. The average duration of their loans is about three and a half years so they will get all of their money back or refinance relatively soon, before AI causes financial stress, if it ever does. ARES has been aware of AI risks for many years and has been very selective in the types of companies in which they invest. Assuming we are wrong and 15% of their software loans default we estimate it would only reduce the company’s growth rate by 3% or 4% for one year and that ARES would continue to grow at a double digit rate.”
Ares Management Corporation (NYSE:ARES) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 51 hedge fund portfolios held Ares Management Corporation (NYSE:ARES) at the end of the fourth quarter, up from 50 in the previous quarter. While we acknowledge the risk and potential of Ares Management Corporation (NYSE:ARES) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Ares Management Corporation (NYSE:ARES) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Ares Management Corporation (NYSE:ARES) and shared Carillon Eagle Mid Cap Growth Fund’s views on the company. In addition, please check out our hedge fund investor letters Q1 2026 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
