Ares Management Overview

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Q: What does Ares Management primarily do, and what kinds of investments does it focus on?

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A: ​Ares focuses on investing in private companies and assets. They invest in companies, lend money, and buy assets.

 

They also lend to other people who are buying these companies or assets.

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Overall, they focus on anything in the private markets.

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Public Markets vs. Private Markets

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Q: What is the difference between public markets and private markets in finance?

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A: In the public markets, firms buy things like debt and hire data scientists to try to beat the index.

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They are constantly searching for patterns in markets and helping portfolio managers make investment decisions.

 

This also connects to wealth management and the investing side of finance, where financial engineering is more focused on public markets.

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These markets have more liquidity and depth, and the goal is often to build predictive models.

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Role of Financial Engineering in Public Markets

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Q: How is financial engineering used in public markets?

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A: Financial engineering in public markets is heavily focused on building predictive models.

 

It involves using data science, quantitative methods, and sometimes crypto or fintech tools to identify patterns and generate returns.

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The goal is to help portfolio managers and outperform benchmarks.

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Role of Financial Engineering in Private Markets

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Q: How is financial engineering used differently in private markets?

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A: In private markets, there is not much financial engineering involved in building something like a real estate building.

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Technology does not necessarily guide decision-making in the same way as in public markets.

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Most of the modeling is transactional. For example, when buying a company, firms build a financial model to project the company’s performance and run scenarios to determine how much to pay.

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Financial engineers are more often used for systems design and support, such as legal and HR information systems.

 

They support the financial and investment process but are not directly making investment decisions.

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Fintech and Innovation at Ares

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Q: How does Ares use technology and fintech within its business?

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A: Ares has worked with innovative fintech companies and even had a life insurance company that was tech-enabled.

 

These fintech solutions are not necessarily investment-focused but are more about improving operations and customer-facing systems.​

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Impact of AI on Financial Engineering

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Q: How do you think the field of financial engineering will change over time with AI?

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A: ​Well, I think innovation will move more quickly. Not that it happens slowly now, but I think the ability to… accelerate innovation will just change the way that people are developing and investing in new product. It will likely disrupt some of the more… entrenched, slower to… evolve businesses, so like I just mentioned, insurance, you know, life insurance… it's a very sleepy, old business, and, you know, it could get disrupted if it doesn't embrace technology in either the way that it distributes or sells its product.

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Banking, you know, again, sleepy, but now a lot of people are… are… banking in different ways, even companies like Robinhood for younger generation, where people are managing their investment accounts more directly. And they trust the fintech solution versus the… the entrenched solution, so I think a lot of it's just going to be about how quickly new technology can be rolled out, and how disruptive that all could be?

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Roles and Career Paths in Financial Engineering

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Q: What are the main roles of financial engineers, and what career opportunities exist in this field?

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A: Well, like I said, for us, we have a whole group of folks that we call our quantitative research group. They work mostly on predictive modeling to look at the investment portfolios that we have and try to understand how they're going to perform, run different risk analytics on the portfolios to understand where there are correlations. And risk that we don't see. So there's a whole world in financial engineering that's just all about, kind of, data… analytics and risk management, and we use that heavily.

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I mentioned our insurance business, we use… we use our… engineers to build innovative, consumer-facing applications to help sell and manage those policies for them? Like I said, for us, that's kind of the bulk of it. We have a scientific fixed-income business, I mentioned, where we're kind of modeling the liquid credit markets and trading those algorithmically. But I already said this, the algorithmic quant trading business is largely a public markets business, so we just don't do that.

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Educational Background and Preparation

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Q: What did you study in college, and how did it prepare you for your career?

 

A: I was in economics, poli sci, and philosophy majors, pursuing a liberal arts education. And then I found myself in the world of finance. I think, for me, at least, the liberal arts education was multidisciplinary, so I was looking at it through the lens of classical philosophy. And how that informed the development of various political and economic systems, and then… looked at the, you know. The history of… of… you know, kind of called modern history and how those systems evolved and changed over time, and so I didn't really show up prepared necessarily for a career in finance, but I felt like I had a view as to how to think about broad, interconnected systems. That kind of served me well.

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And the modeling that I needed to do was very basic. Financial modeling. Like, everything I… everything I grew up doing when I first started out was basically on Excel spreadsheet-type work. It wasn't… it wasn't deep financial and engineering work. But I think it was more of a taught me how to think. And then in the investment business, a lot of what you're… what… drive success in investing is… seeing patterns and understanding how… how to probability adjust? Outcomes, and so… you know, it's mathy, but it's not complicated math.

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But… but some people have a… a knack for kind of seeing the bigger picture, and some… some don't, I guess? CompSci, data sci… which is great, and obviously that's kind of the… there's a lot… there's a lot there for the future, but the financial piece, that may not be as relevant. If you get a real deep capability in data science, you're gonna be able to look at that in many different industries.

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Financial Engineering vs. Financial Economics

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Q: How does financial engineering differ from a more liberal arts–focused financial economics track?

 

A: Financial engineering is definitely a more technical application of economics, more focused on creating financial models and incorporating machine learning and AI into financial technologies. It is more math-based.

 

While financial economics is more about understanding markets and economic theory as a whole, with more analytical skills, and how the models that financial engineers create will impact the economy as a whole.

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We would like to thank Mr. Arougheti for the time he spent speaking with us, and we hope you were able to learn something from the insight he provided.

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From,

Cooper