On the desk today · Ares Capital Corporation
Too big for a bank. Too small for the bond market. Ares Capital lends where nobody else will.
| NASDAQ · ARCC |
ACTION REQUESTED BY DECEMBER 8th
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The Private Bank
Hiding on the Nasdaq
In 1997, Antony Ressler — a co-founder of Apollo Management — left the firm he had helped build and started a new one. He called it Ares Management. He recruited a small team that included Michael Arougheti, who would eventually become CEO of the parent company. Their thesis was simple: the American middle market — companies with $10 million to $250 million in annual earnings — was enormous, growing, and badly underserved. These companies were too large for a local bank's lending desk and too small to issue bonds in the public debt markets. They existed in a gap. And nobody was filling it.
Seven years later, in October 2004, Ares created a publicly traded vehicle to bring that lending strategy to everyday investors. They called it Ares Capital Corporation.
I asked a friend who runs a packaging company in Ohio how he financed his last acquisition. He said his bank couldn't do the deal — the loan was too large, the structure too complex, the timeline too short. So he went to a private lender. The rate was higher than a bank loan. But the money arrived in weeks, not months. And the lender didn't ask him to move his deposits or open a checking account. It just lent — and collected a quarterly interest payment. I asked who the lender was. He had to look it up. "Some company called Ares," he said.
That is the business model. Ares Capital lends money to middle-market companies — private firms that need between $30 million and $500 million in financing for acquisitions, growth, recapitalizations, or refinancings. The loans are predominantly senior secured — meaning Ares holds first claim on the borrower's assets if the company defaults. The interest rate is typically 8% to 12%. And because Ares Capital is structured as a business development company — a BDC — it is required by law to distribute at least 90% of its taxable income as dividends. The income goes out the door, into the shareholder's account, every quarter.
As of December 31, 2025, Ares Capital held a portfolio of investments valued at $29.5 billion across 603 companies. Total assets were $31.2 billion. In fiscal 2025, total investment income reached $3.05 billion. Net investment income — the cash earned after expenses — was $1.42 billion, or $2.02 per share. Core EPS was $2.01. The quarterly dividend held at $0.48 per share — $1.92 annually — for the 17th consecutive year of stable or increasing regular dividends. Since its IPO in 2004, Ares Capital has paid $19.10 in cumulative dividends per share. The stock currently trades around $19 — meaning the company has returned more in cash than the stock itself is worth, and the shares are still there.
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That $19.10 in cumulative dividends is the stat that rewires how you think about income investing. Ares Capital went public at roughly $15 per share in October 2004. Over the 22 years since, it has paid out $19.10 per share in cash dividends — more than the original stock price. If you had bought the IPO and done nothing — just held the shares and collected the checks — you would have received your entire investment back in cash and still owned the stock. The dividend didn't just supplement the return. It was the return.
The stickiness is the borrower relationship. When Ares Capital lends to a middle-market company, it doesn't just wire the money and wait for interest payments. It sits on the company's board in many cases. It monitors the financials. It structures the loan to protect its position — first-lien security, covenants, cash flow sweeps. And when that company needs more capital — to make an acquisition, to refinance existing debt, to expand into a new market — it calls Ares first. The incumbent lender who already knows the business gets the next deal. The relationship compounds.
Kort Schnabel, Ares Capital's CEO, said it plainly in the fourth-quarter 2025 results: "Our strong fourth quarter results capped another successful year for our company." Scott Lem, the CFO, added: "During 2025, we continued to enhance ARCC's strong balance sheet, adding a record $4.5 billion of new gross debt commitments while maintaining ample levels of liquidity to support both new and existing portfolio companies."
The flywheel runs on the size of the middle market itself. There are roughly 200,000 middle-market companies in the United States. They employ approximately 48 million people — more than a third of private-sector employment. Most of them need debt capital at some point — for growth, for acquisitions, for working capital. Banks have retreated from middle-market lending since 2008, constrained by regulation and capital requirements. The gap between what these companies need and what banks will provide has only widened. Ares Capital fills it. The portfolio grew from $26.7 billion to $29.5 billion in 2025 alone — 53 new companies added in a single year. The demand is structural. The supply of willing lenders is limited. And the dividend keeps arriving.
WHY THIS WORKS
The 90% payout rule is the income engine. As a BDC, Ares Capital must distribute at least 90% of taxable income as dividends. The cash goes directly to shareholders — quarterly, without exception.
$29.5 billion in senior secured loans. The majority of the portfolio is first-lien debt — meaning Ares stands first in line if a borrower defaults. Senior security reduces loss severity and protects the income stream.
603 companies diversify the risk. No single borrower dominates. Ares lends across healthcare, software, business services, consumer, and industrials. A default by any one company barely moves the portfolio.
$19.10 in cumulative dividends since 2004. The original IPO price has been more than fully returned in cash. The stock still trades. The dividend still arrives. The income machine has been running for 22 years.
There are roughly 200,000 middle-market companies in the United States. They are too large for a community bank and too small for Goldman Sachs. They build the products, run the services, and employ the workers that the public markets never see. Ares Capital lends to 603 of them. The loans earn interest. The interest becomes income. The income becomes a dividend. And the dividend — $0.48 per share, every quarter, for 17 consecutive years of stable or rising payments — arrives whether the stock market is up, down, or sideways. The private bank hiding on the Nasdaq has paid back more than it ever asked for. And it's still lending.
