The White House’s recent criticism of the Federal Reserve’s headquarters renovation project has highlighted the central bank’s sources of funding. Unlike federal departments that receive taxpayer dollars via appropriations from Congress, the Fed is self-funded, largely via interest income from government securities it holds.
The Federal Reserve’s funding has come under scrutiny as the White House attacks the $2.5 billion headquarters renovation for cost overruns.
That controversy was underscored on Thursday, when President Donald Trump and Fed Chairman Jerome Powell disagreed over the cost during a visit to the central bank. Trump’s allies have suggested the project could be grounds for ousting Powell, but the president has said he would not fire him, though Trump continues to demand lower rates.
Unlike the Pentagon and a new weapons system that has blown through its budget, the Fed and its operations are funded differently.
While the Defense Department and other executive branches receive money from Congress, the Fed is self-funded, largely via interest income from government securities it holds.
That means no taxpayer dollars have been appropriated for Fed operations — including building projects like the headquarters renovation.
Most of the Fed’s income comes from assets such as Treasury bonds and mortgage-backed securities that sit on the central bank’s balance sheet and earn interest.
That balance sheet exploded in size during the Great Financial Crisis and COVID-19 pandemic as the Fed bought trillions of dollars of bonds to prop up the economy.
Other sources of income include interest on foreign currency investments held by the Fed; fees for services like check clearing, funds transfers, and clearinghouse operations provided to depository institutions; and interest on loans to depository institutions.
To be sure, the Fed’s mission isn’t to maximize its earnings from trading securities. Instead, it has a dual mandate of stable prices and maximum employment. Buying and selling assets is only a means for achieving those ends.
Meanwhile, the Fed also has costs, including interest payments on reserve balances, interest payments on securities sold via repurchase agreements, and operational costs like payroll and its buildings. Costs go up when the Fed hikes interest rates like it did in 2022 and 2023 to tamp down inflation.
When income exceeds those costs, the Fed hands over the surplus to the Treasury Department. In fact, in the decade before COVID, the Fed sent about $1 trillion to the Treasury.
When the Fed’s costs exceed its income, the central bank creates an IOU known as a “deferred asset” to pay for operations. As interest rates rose, the Fed’s deferred asset grew from $133 billion in 2023 to nearly $216 billion in 2024. As of Wednesday, it was $236.6 billion.
Once rates come down further and income tops losses again, the Fed will pay back the deferred asset and then resume giving the Treasury any excess earnings.
“In conclusion, tighter monetary policy to rein in inflation has resulted in a reduction of net income for the Fed,” the St. Louis Fed said in a 2023 explainer. “This does not mean that the Treasury has to recapitalize the Fed, but rather that the Fed records a negative liability in the form of a deferred asset. This deferred asset accumulates until the Fed sees positive net income, which should happen once interest rates on the long-duration assets it owns start exceeding the interest paid on bank reserves and reverse repo facilities.”
It was once a symbol of rebellion against the well-heeled Wall Street establishment. Today, it’s just another day in markets.
This week proved the point. Opendoor surged 43% in a single day. Krispy Kreme rallied 39% in a matter of hours. GoPro briefly spiked 73%. Reddit message boards lit up once again with rocket emojis and call-option bravado.
Yet it wasn’t the magnitude of the surges that mattered — but the indifference they met. Customary warnings about speculative excess fell on deaf ears. What once felt seismic now feels like a normal part of daily trading — another episode in a US financial system where bursts of retail speculation are routine, expected, and largely unremarkable.
By the end of the week, with the quick rallies faded, the broader market ended with modest moves after a record-setting run. Meanwhile, crypto — once cast as the financial resistance — continued its steady march into the mainstream. A new blockchain-based project involving the likes of Bank of New York Mellon Corp. and Goldman Sachs Group Inc. was announced. Crypto funds posted their biggest four-week cumulative inflow ever. Michael Saylor’s Strategy clinched another $2.8 billion in capital markets to fund additional Bitcoin buying.
Taken together, the week offered a broader lesson: retail-driven speculative behavior no longer signals generational angst or post-pandemic distortion. It has instead become a settled feature of the current cycle. Short-dated options are part of the retail toolkit, trading platforms span everything from sports betting to complex stock bets, and manic episodes rarely require justification to take hold.
Peter Atwater, an adjunct professor at the College of William & Mary who studies retail investors, said the current wave of activity reflects a shift in both market sentiment and investment toolkit. Meme stocks trading, he says, has lost its sense of novelty — and that’s precisely the point. “We’ve normalized memeing,” he said. “There’s a yawn to it now.”
In Atwater’s view, the most aggressive traders have already moved on to riskier frontiers – digital tokens, leveraged ETFs, prediction markets — while meme stocks have become more of a cultural rerun. “It’s like 30-year-olds dancing to music 20-year-olds used to party to,” he said.
That meme stocks can rip without stimulus checks, lockdowns or zero rates isn’t especially surprising anymore. It is, in its own way, a marker of the moment: everyday speculation, embedded in the architecture of modern markets. Contracts that expire within 24 hours made up a record 62% of the S&P 500’s total options so far this quarter, according to data compiled by Cboe Global Markets Inc., with more than half of the activity being driven by retail trading.
“This generation is far savvier about options and market structure,” said Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets. “While my generation was perhaps taught to ‘buy a house’ this one knows to ‘buy the dip.’”
It’s not happening in a vacuum. This week earnings season offered few surprises. Tariff deadlines slipped again. Noise from the White House blurred into the investment backdrop. The S&P 500 climbed 1.5% on the week and closed at a record high.
And in the end, a group of volatile stocks became yet another playground where regular investors aimed to quickly turn a profit, often by cornering short sellers or leveraging options. Opendoor Technologies Inc., capped a six-day winning streak with a 43% pop on Monday. The following days saw stocks with high short interest such as Kohl’s Corp., GoPro Inc., Krispy Kreme Inc. and Beyond Meat Inc. surge intraday then pare into the close.
Competition for gambling dollars is more brisk than it used to be. Since the post-Liberation Day selloff, a Goldman Sachs basket of the most shorted stocks has jumped more than 60%. In credit, CCCs, the riskiest tier of the junk bond universe, are on track to rack up a seventh week of gains. Crypto funds took in $12.2 billion in the past four weeks, their biggest cumulative inflow for such period, according to Bank of America Corp. citing EPFR Global data. US leveraged-loan market just had one of its busiest weeks ever with junk-rated companies rushing to reprice their borrowings multiple times.
And while the latest frenzy was reminiscent of 2021’s pandemic-era burst, there were a few key differences. This week’s action was fleeting, lasting one or two trading days before petering out. Concerted campaigns in the options market played a smaller role. More than half of the top 100 stocks in the S&P 500 index were trading with inverted one-month call skew in 2021, a sign of bullish intent, according to Cboe. This week it got only as high as 21% for the group.
“The market makers and institutions have really adjusted to this phenomenon,” said Garrett DeSimone, head quant at OptionMetrics. They’re “able to hedge their risk and they know how to price these options in across these scenarios,” he said.
If it signaled anything, enthusiasm for memes is more evidence that an ever-more-empowered retail cadre is a fact of Wall Street life that isn’t going anywhere, at least not soon.
“I don’t think it’s the beginning of a new trend, but it is very interesting to watch because it speaks that the retail investor really wants to be involved in this market,” said Jay Woods, chief global strategist at Freedom Capital Markets. “This is bullish. This is not bearish. This is not significant of a top.”
Stocks climbed to more records on Wall Street. The S&P 500 rose 0.4% Friday, setting an all-time high for the fifth time this week. The Dow Jones Industrial Average rose 0.5%, and the Nasdaq composite added 0.2% to its own record set the day before. Deckers helped lead the way with a gain of 11.3%. The company behind Ugg boots and Hoka shoes reported stronger profit and revenue than analysts expected. That helped offset a sharp drop for Intel, which sank 8.5% after saying it would cut thousands of jobs as it tries to turn around its struggling fortunes.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
NEW YORK (AP) — U.S. stocks are rising toward more records on Friday and coasting toward the close of another winning week.
The S&P 500 was 0.5% higher in late trading and on track to close at an all-time high every day of this week. The Dow Jones Industrial Average was up 221 points, or 0.5%, with less than an hour remaining in trading, and the Nasdaq composite was adding 0.4% to its own record set the day before.
Deckers, the company behind Ugg boots and Hoka shoes, jumped 12.3% after reporting stronger profit and revenue for the spring than analysts expected. Its growth was particularly strong outside the United States, where revenue soared nearly 50%.
Edwards Lifesciences rose 4.3% after likewise topping Wall Street’s expectations for profit in the latest quarter. It said it saw strength across all its product groups, and it expects profit for the full year to come in at the high end of the forecasted range it had given earlier.
They helped offset a drop of 9.3% for Intel, which fell after reporting a loss for the latest quarter, when analysts were looking for a profit. The struggling chipmaker also said it would cut thousands of jobs and eliminate other expenses as it tries to turn around its fortunes. Intel, which helped launch Silicon Valley as the U.S. technology hub, has fallen behind rivals like Nvidia and Advanced Micro Devices while demand for artificial intelligence chips soars.
The pressure is on companies to deliver solid growth in profits in order to justify the rallies in their stock prices to record after record in recent weeks. Wall Street has zoomed higher on hopes that President Donald Trump will reach trade deals with other countries that will lower his stiff proposed tariffs, along with the risk that they could cause a recession and drive up inflation. Trump has recently announced deals with Japan and the Philippines, and the next big deadline is looming on Friday, Aug. 1.
Besides potential trade talks, next week will also feature a meeting by the Federal Reserve on interest rates. Trump again on Thursday lobbied the Fed to cut rates, which he has implied could save the U.S. government money on its debt repayments.
Fed Chair Jerome Powell, though, has continued to insist he wants to wait for more data about how Trump’s tariffs affect the economy and inflation before the Fed makes its next move. Lower interest rates can help goose the economy, but they can also give inflation more fuel.
Lower rates also may not lower the U.S. government’s costs to borrow money, if the bond market feels they could send inflation higher in the future. In that case, lower short-term rates brought by the Fed could actually have the opposite effect and raise the interest rates that Washington must pay to borrow money over the long term.
The widespread expectation on Wall Street is that the Fed will wait until September to resume cutting interest rates.
In the bond market, Treasury yields held relatively steady following Trump’s latest attempt to push Powell to cut interest rates. Trump also seemed to back off on threats to fire the Fed’s chair.
“To do that is a big move, and I don’t think that’s necessary,” Trump said. “I just want to see one thing happen, very simple: Interest rates come down.”
If Trump fired Powell, he’d risk freaking out financial markets by raising the possibility of a less independent Fed, one unable to make unpopular choices necessary to keep the economy healthy.
The yield on the 10-year Treasury eased to 4.38% from 4.43% late Thursday. The two-year Treasury yield, which more closely tracks expectations for what the Fed will do, held steady at 3.91%, where it was late Thursday.
In stock markets abroad, indexes slipped across much of Europe and Asia.
Stocks fell 1.1% in Hong Kong and 0.3% in Shanghai. U.S. Treasury Secretary Scott Bessent has said he will meet with Chinese officials in Sweden next week to work toward a trade deal with Beijing ahead of an Aug. 12 deadline. Trump has said a China trip “is not too distant” as trade tensions ease.
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AP Writers Teresa Cerojano and Matt Ott contributed.
President Donald Trump took to social media Thursday morning to support Elon Musk’s car company, a startling development given their bitter public feud.
”I want Elon, and all businesses within our Country, to THRIVE,” Trump wrote on Truth Social.
The post wasn’t enough to help Tesla’s stock, which fell sharply after the company reported another quarter of lackluster financial results and Musk warned of some potentially “rough quarters” into next year. At midday, the stock was down around 9%.
Late Wednesday, Tesla said revenue fell 12% and profit dropped 16% in the April-June quarter. Many prospective buyers have been turned off by Musk’s foray into right-wing politics, and the competition has ramped up in key markets such as Europe and China.
Investors have been unnerved by Musk’s social media spat with the president because Trump has threatened to retaliate by ending government contracts and breaks for Musk’s various businesses, including Tesla.
But Trump struck a starkly different tone Thursday morning.
“Everyone is stating that I will destroy Elon’s companies by taking away some, if not all, of the large scale subsidies he receives from the U.S. Government. This is not so!” Trump wrote. “The better they do, the better the USA does, and that’s good for all of us.”
After Trump’s massive budget bill passed earlier this month, Tesla faces the loss of the $7,500 EV tax credit and stands to make much less money from selling regulatory credits to other automakers. Trump’s tariffs on countries including China and Mexico will also cost Tesla hundreds of millions of dollars, the company said on its earnings call.
Musk has blasted the budget bill on his own social media platform X for adding to U.S. debt at a time when it is already too large. The Tesla CEO has called the budget pushed by the president a “disgusting abomination” and has threatened to form a new political party.
On Wednesday’s call, Musk said the electric vehicle maker will face “a few rough quarters” as it moves into a future focused less on selling cars and more on offering people rides in self-driving cars. He also talked up the company’s business making humanoid robotics. But he acknowledged those businesses are a ways off from contributing to Tesla’s bottom line.
Tesla began a rollout in June of its paid robotaxi service in Austin, Texas, and hopes to introduce the driverless cabs in several other cities soon. Musk told analysts that the service will be available to probably “half of the population of the U.S. by the end of the year — that’s at least our goal, subject to regulatory approvals.”
“We’re in this weird transition period where we’ll lose a lot of incentives in the U.S.,” Musk said, adding that Tesla “probably could have a few rough quarters” ahead. He added, though, “Once you get to autonomy at scale in the second half of next year, certainly by the end of next year, I would be surprised if Tesla’s economics are not very compelling.”
Tesla’s second quarter earnings signaled the company continues to go through a difficult patch, with both revenue and adjusted earnings per share missing the average Wall Street estimates. Revenue was $22.5 billion, down approximately 12% year over year, the sharpest decline in at least a decade. Adjusted earnings per share was 40 cents, down from 52 cents a year ago. Analysts, on average, had forecast revenue between $22.62 billion and $22.64 billion and adjusted EPS of $0.41 to $0.42 per share, with Tesla below the midpoint on each.
Tesla’s double-digit percentage revenue decline was primarily attributed to the ongoing slump in vehicle deliveries. Improved energy storage deployments and new service offerings provided minor offsets, but could not outweigh the hit from lagging car sales and persistent price competition across the electric vehicle industry.
Operating income also fell significantly, coming in at $923 million, which was below consensus estimates of $1.23 billion. Net income dropped year over year as margins continued to shrink, pressured by lower average selling prices, higher raw material costs, and global trade headwinds.
Tesla had previously reported deliveries of more than 384,000 vehicles in the quarter—a drop of more than 13% from the previous year—with production holding steady at just over 410,000 vehicles. This marks the second quarter in a row of reduced year-over-year deliveries.
Wall Street had entered the earnings week with tepid expectations, citing declining sales, compressed margins, and elevated spending on research and development as factors dampening short-term prospects. While Tesla’s results were slightly weaker than forecast, shares saw only a modest uptick in after-hours trading, as investors focused on the company’s long-term ambitions rather than current sales struggles.
Robotaxi, AI, and a new affordable model
Tesla’s leadership used the earnings release to reaffirm its pivot toward next-generation technologies. CEO Elon Musk highlighted the launch of Tesla’s first Robotaxi pilot service in Austin, along with vague remarks related to the ongoing development of a long-rumored “more affordable” Tesla model.
Musk signaled that, amid stiffer automotive competition, Tesla’s strategy increasingly centers on breakthroughs in autonomy, artificial intelligence, and energy solutions as pillars for future growth.
Multiple challenges continue to weigh on Tesla, including expiring U.S. electric vehicle tax credits in October 2025, ongoing trade disputes and tariffs affecting costs and global supply, and intensifying competition from established automakers and Chinese EV brands. More generally, the brand has growing reputational issues associated with Musk and his support of President Donald Trump, even after the two had a falling out that coincided with fierce criticism of each upon the other. During Musk’s brief role helping the administration, his sometimes successful attempts at slashing government spending provoked ire from much of Tesla’s traditional customer base, with environmentalist and left-leaning politics. Other investors said they wished the distraction would go away.
For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.
The S&P 500 and Nasdaq set fresh intraday records on Monday, while the Dow Jones Industrial Average reversed slightly lower. Upbeat corporate earnings continued to fuel the stock market rally, even as uncertainty over President Donald Trump’s tariffs persisted and the White House continued to pressure the Federal Reserve.
U.S. stocks powered higher on Monday as strong earnings overshadowed continued uncertainty on tariffs and the White House’s pressure on the Federal Reserve.
The S&P 500 closed up 0.14%, and the Nasdaq rose 0.38%, paring gains after touching new all-time intraday highs. The Dow Jones Industrial Average reversed lower, slipping 19 points, or 0.04%.
The yield on the 10-year Treasury dropped 4.7 basis points to 4.384%. The U.S. dollar fell 0.55% against the euro and sank 0.97% against the yen. That’s after upper-house parliamentary elections in Japan were not as disastrous for Prime Minister Shigeru Ishiba’s coalition as feared, though his future remains in doubt.
Gold jumped 1.52% to $3,409.50 per ounce. U.S. oil prices dipped 0.52% to $66.99 per barrel, and Brent crude lost 0.42% to $68.99.
Verizon helped the market after beating quarterly earnings forecasts and raising its profit outlook for the year. Shares of the telecom giant surged 4%.
That follows upbeat results last week from big banks like JPMorgan, which said U.S. consumers remain resilient despite headwinds from tariffs.
After the first week of this earnings season, 73% of companies have beaten per-share profit estimates, above the first-week average of 68%, according to Bank of America.
Meanwhile, Trump’s trade war and his war on the Fed are still hanging over the market.
On Monday, Treasury Secretary Scott Bessent told CNBC that trade talks are moving along, adding that getting a good deal is more important than the timing of a deal. That could suggest the Aug. 1 deadline, when higher tariff rates are due to kick in, may be more flexible.
In the same interview, he also ramped up pressure on Fed Chairman Jerome Powell, who has resisted Trump’s calls to lower rates. Bessent said “the entire Federal Reserve institution” should be examined.
That’s after the White House accused Powell of mismanagement over the Fed headquarters renovation, while backing off suggestions he should be fired.
Ron Zori’s first brush with venture capital came during his freshman year at Columbia University, when he went to the Mercer Hotel in SoHo for coffee. As Zori tells it, he just happened to strike up a conversation with someone at a table nearby, who just happened to be Lukasz Gadowski, one of the founders of the brand-new startup Delivery Hero. Gadowski ended up introducing Zori to his lead investor, Kite Ventures’ Edward Shenderovich, who hired Zori out of college to support him in investing in companies like Dataminr, Lyft, and Plated.
That turned into leadership roles at Knotel and Public, side quests as an a16z scout and angel investor, and now Zori’s new gig—the first senior venture hire at the venerated New York firm Lerer Hippeau. “Serendipity,” as Zori describes it. His new boss, Ben Lerer, disagrees. “I’ve never met anybody in my life like that,” Lerer tells me from his firm’s headquarters overlooking the Hudson River, about a 10-minute walk from the Mercer Hotel. “I feel like Ron meets people like this twice a week.”
Known for its seed-stage investments in the New York consumer space into companies like Warby Parker and Casper, Lerer Hippeau recently announced its ninth fund, a $200 million vehicle that will look to capitalize on the growing buzz in sectors like AI and fintech. And despite the firm’s 15-year history, Lerer says that Zori’s hire marks the first time they’ve brought on a senior venture partner.
Zori, a pro soccer player in Israel before going to Columbia, has always had an eye on growth. He worked as the head of revenue at Knotel, a WeWork competitor that eventually filed for bankruptcy during the pandemic, joining the company in its infancy and helping take it to $370 million in recurring revenue. While at Knotel, he would meet with startups renting office space and occasionally write angel checks. His first was into a small fintech company called Public, which would gain unicorn status just a couple of years later. Zori joined in 2020 to work on business development. It was his second time experiencing a startup’s rocketship moment, as Public went from a few thousand users to a few million. “That was the rush,” he tells me. “That’s what I’m here for.”
At the end of 2022, Zori left to focus on his own investments, raising capital for special-purpose vehicles and deciding whether to start his own fund. He’d kept up a friendship with Lerer over the years, often feeding him deal flow. They also co-invested, including in Duet, a health tech startup led by former Knotel executive Jonathan Goldberg that helps nurse practitioners launch their own practices. “Ron was existing in my head as something between an emerging manager and a super angel,” Lerer tells me. He thought that Zori could have the most impact on startups by joining a platform with capital and resources like Lerer Hippeau. “It feels like a real value to get to work with somebody who you have an existing, trusted relationship with,” Lerer says.
Zori started at the firm two weeks ago and will have a hefty portfolio during this critical juncture for the venture industry. One priority will be looking at sectors where Zori has been in the trenches of “zero-to-one,” namely fintech and consumer, and figuring out where they’re headed. Another will be building Lerer Hippeau’s pipeline to Israeli and European startups, with Zori planning to spend about two months of the year out of Israel. “This marriage with Lerer Hippeau, I think, provides us the opportunity to actually give these founders the best platform as they expand to the US market,” Zori says.
In early 2024, Michael Arougheti bought a stake in the MLB’s Baltimore Orioles with two of his colleagues at Ares Management. The move let him join the ultra-exclusive ranks of pro sports owners—but he realized there would be downsides. For one, he would have to give up his fantasy baseball league and his lifelong identity as a Yankees fan. But he didn’t think twice, and nor did his new co-owners, Mitchell Goldstein and Michael Smith. After signing the paperwork, Goldstein promptly went into his closet and filled three garbage bags with Yankees clothes and memorabilia, though he did hold onto his signed Derek Jeter jersey.
The three seized on the rare opportunity to get a piece of a pro sports team by becoming part of a new ownership group for the O’s that included high-profile names like David Rubenstein, cofounder of the private equity giant Carlyle Group, Orioles legend Cal Ripken Jr., and Michael Bloomberg.
The Orioles purchase came as the latest signal of Ares’ rapid ascendance in the alternative asset sector, alongside familiar giants Carlyle, KKR, and Apollo. Like its rivals, Ares deals in “alt” investments like real estate and corporate reorganizations. But the firm’s arrival in the big leagues came about thanks to its dominance of one of the sector’s hottest categories: private credit.
The rise of Ares
A global company with outposts from Los Angeles to Jakarta, Ares’ spiritual headquarters is in Manhattan, where it occupies four of the top floors in the sleek 245 Park Avenue tower. Arougheti, who has served as CEO since 2018, has his office alongside Goldstein and Smith, who run the credit group, and Kipp deVeer, who the firm elevated to co-president earlier this year. DeVeer’s counterpart, Blair Jacobson, works out of Ares’ London office.
“What we are trying to create is any company around the globe that has a need for capital, with one call to Ares, we can be a solution provider,” Goldstein tells Fortune. “We have a long way to go to get there, but that’s our goal.”
Private equity is known for its sharp elbows and ruthless dealmaking, so the cohort of decades-long friends running Ares seems improbable. Also unusual is Ares’ distributed leadership structure, which entails Arougheti serving as CEO alongside newly minted co-presidents de Veer, who he has known since college, and Jacobson. One layer down is Arougheti’s Orioles co-owners, Goldstein and Michael Smith.
From the outside, the arrangement would seem unwieldy, at best. But it’s not an uncommon structure in private equity. KKR has a long history of joint leadership, with Joe Bae and Scott Nuttall serving as co-CEOs (and an ambition to reach $1 trillion in assets by 2030).
In the case of Ares, Arougheti serves as the face of the franchise, while de Veer and Jacobson lead the firm’s aggressive expansion plans, and Goldstein and Smith focus on core operations. The five insist that they function as a single braintrust, with everyone besides the Europe-based Jacobson working out of the side-by-side offices in New York.
They are, as Tom Wolfe put it in his 1987 Wall Street classic The Bonfires of the Vanities, the “masters of the universe”—the often hidden forces playing with ungodly sums of money to shape the world around us. But they seem like old college buddies, reminiscing on their days running around New York as 20-year-olds and butting into each other’s sentences. The only difference from any other pack of aging male friends is that instead of bonding over fantasy sports, they could afford to buy an actual team.
“I was in Kipp’s wedding. Our kids grew up together,” says Arougheti. “There’s a psychological benefit that helps us culturally.”
Arougheti himself took over the mantle of Ares CEO from Tony Ressler in 2018. He admits that with any leadership change, there will be accusations of succession planning, though he notes that he, deVeer, and Jacobson are all around the same age. “I had no plans of leaving the company,” he insists. Instead, the decision was to power Ares’ aggressive expansion plans, with all three now able to focus on growth and divide day-to-day management. It also allowed Ares to promote other leaders, including Goldstein and Smith, who took over the credit investment operations.
The five all met each other starting their careers in the New York finance industry in the 1990s, with Arougheti, deVeer, and Smith working together at Indosuez Capital and then RBC on a relatively niche area of banking, at least at the time: making loans to so-called middle market companies, which are often too small to go public.
The young bankers were hungry, though, and realized their area of specialty would never be a focus for a big institution like RBC. It was, however, becoming an increasing priority for private equity firms, who were starting to build out operations to lend to middle market companies or create financing to help with their buyouts.
One such firm was Ares, initially created within the private equity behemoth Apollo by its cofounder, Tony Ressler, to focus on distressed credit. As Ares moved into private equity in the 2000s, Ressler wanted to build a credit unit that could help finance deals. He ended up hiring Arougheti, deVeer, Smith, and Goldstein, along with 8 other RBC employees, and a management contract from RBC allowed them to take their book of business. Knocking around the world of high finance, Ares’ new hotshots had picked up all the tools. But it was spotting and seizing a massive new market that would vault them into the big leagues.
Kings of credit
Traditional private equity, at its core, is a simple strategy. A firm like Apollo or KKR will find a business that it thinks could be run more efficiently. It will raise money to buy a controlling stake in the business, ideally pushing profits up and operating costs down, either keeping the returns or finding another buyer at a higher price.
Private credit is one layer more abstracted. Instead of borrowing from banks, private equity firms could borrow money from other alternative asset firms—a phenomenon that became even more prevalent with the financial crisis, as banks’ risk appetites changed, partly as a result of shifting regulation. Ares became a leader of the burgeoning practice, providing loans to the private equity portfolio companies of counterparts like Apollo and KKR rather than competing against them for buyouts, and occasionally taking a small equity stake in the deals they helped fund. “Financing for a lot of companies has become very incestuous,” says Elisabeth de Fontenay, a professor at Duke Law who studies the rise of private credit.
In recent years, the sector has exploded, roughly doubling since 2020, and is expected to grow to more than $2.5 trillion by 2029. As a first mover in the meteoric space, Ares is near the top of the pack, with nearly $360 billion of assets in private credit alone as of March, with about another $186 billion spread over private equity, real estate, and other asset classes. Last year, Ares announced that it wanted to nearly double its assets under management to surpass $750 billion by the end of 2028—an ambitious goal that would place the firm in the top ranks of the alternative assets industry.
But it wasn’t always that way. Goldstein recalls the panicked days of the financial crisis, when Ares—and private credit as a practice—began to take off. As capital from banks grew scarce, Ares would call up its clients and tell them they were open for business. “We did very well,” he says.
They also began to fill the role that banks once held. As regulations shifted in the wake of the crisis, banks’ desire and ability to lend to smaller companies decreased. Instead, they began providing financing to firms like Ares, which allowed them to reduce their own risk exposure while still benefiting from the upside. “There was even more of an incentive to try to do lending in a way that avoided bank regulation,” says de Fontenay. “That’s really when and why private credit took off.”
Ares would argue that isn’t necessarily a bad thing. Smith refers to the period as the “golden age of private equity.” More firms were starting buyout funds, existing funds were getting bigger, and they all needed a partner. Banks didn’t want to fill the role of direct lending, so Ares could fill the gap. They didn’t just want to supply money, but be a more active partner, especially because they could provide small equity stakes.
The financial crisis also exposed the vulnerability of the bank model, where deposits were tied up in long-term loans, meaning they were technically solvent, but not liquid. “That’s where you get bank runs,” de Fontenay says. “Private credit is a really nice solution to that.”
The result was a reshaping of the American economy. 20 years ago, a smaller business might have been family-owned and financed by a local bank, and a larger company would have found funding through the public markets. “Today, that company is private equity-owned by a very large private equity fund and private credit financed by a very large private credit fund,” de Fontenay tells Fortune. “We’re in a very different world now.”
The rise of private equity has minted a wave of new billionaires—with four at Ares alone, including Arougheti—and the industry has become a lightning rod for critics who accuse PE firms of pillaging everything from nursing homes to newspaper chains by slashing payroll costs and selling what’s left for scraps.
Goldstein argues that layoffs are not the thesis of most of the private equity businesses in their portfolio when they’re bought. “Why do they get that rap? Is it based on fact, or is it based on it happening once or twice?” he asks. “In different periods of time, different asset classes get unfairly tarnished because they happen to be growing,” he says. “I think it is more political than it is a reality.”
The competition is nipping at Ares’ heels. Private credit continues to expand as the IPO market remains closed, with companies staying private for longer and needing more financing. “It’s very easy to start a private credit fund because they’re close to unregulated,” says de Fontenay. “There’s a ton of copycats, and more and more capital going into this market.”
That only means the risks are growing. Even though many alternatives firms, including Ares, are publicly traded, they don’t have to report the details on their loan books the same way banks would have to. She argues as a result, it’s difficult to know the actual health of the companies that private credit funds are lending to, especially as the economy teeters with the threat of tariffs.
“Scale is unbelievably powerful.”
– Ares co-president Blair Jacobson
Arougheti argues that Ares’ long history in private credit not only shields them from the competition, but also from the potential missteps that his new rivals might commit. “What is misunderstood is just how hard it is to perform consistently in this business, and how hard it is to accumulate scale,” he says. “Scale is unbelievably powerful,” adds Jacobson.
In other words, they’re arguing that building a private credit business the size of Ares takes decades: shouldering operating losses, accumulating talent, and building relationships. It’s why they hired Jacobson in Europe back in 2012, and why they’re now pushing into Asia, Latin America, as well as into new industries like infrastructure and real estate, including closing a nearly $4 billion acquisition earlier this year that doubled Ares’ real estate portfolio. “We’ve accumulated meaningful competitive advantages, and we want to press those advantages as quickly as we can,” says Arougheti.
“It’s not just a rush for growth,” adds de Veer. “It’s a belief that the larger that we get in a handful of these markets and geographies, the better we’ll be in the job.”
It explains why Ares can have such an aggressive target for expanding its footprint, even as the private equity industry as a whole struggles to fundraise. It’s also why Arougheti appears nonplussed about the new competition. “For all the talk of people getting into it and raising funds,” he boasts, “No one is really making any traction or inroads into taking share from the incumbents.”
The Last Dance
After years of building its reputation as the financial foundation for the private equity industry, sports may be where Ares gains mainstream fame. The two industries have become increasingly intermeshed, especially as figures like Apollo’s Josh Harris and Blackstone’s David Blitzer buy ownership roles in sports teams.
Apart from Arougheti’s rising status with the Orioles (Carlyle’s Rubenstein said last year that Arougheti was the “logical person” to become the team’s controlling owner), Ares made national headlines in December when it was part of the first group of private equity firms approved to buy a stake in a football team.
Sports have long been part of the firm’s DNA, including making investments in the space since 2007. Smith recalls that when they were building Ares, they would take private equity clients out to baseball games, especially if someone from their fantasy team was playing. “It was always a way to get people away from their office,” he says. “You could build a friendship away from just a business relationship.”
Arougheti says that they got the idea to move further into the space while cooped up during the pandemic, all watching the Michael Jordan documentary The Last Dance. They realized that no one would be showing up at a stadium anytime soon, so there would be a need for liquidity solutions. They formalized a standalone strategy, and after working to build relationships with leagues and team owners, finalized their first investment in December 2020. The firm announced a nearly $4 billion fund dedicated to sports and entertainment in 2022, finally gaining approval to buy a 10% stake in the Miami Dolphins late last year.
Private equity moving into professional sports conjures the same fears of merciless efficiency in an industry driven by sentimentality, but Arougheti brushes off the concerns, arguing that institutional capital will increase profitability and allow owners to invest more in their teams. “Fans want to win,” he says. “They’re going to love it.”
But as Ares’ insatiable desire for growth seems destined to eventually hit some outside bounds, Arougheti says its push into sports shows how far the firm still has to expand. “Every time you think that maybe a market that you participate in is maturing, the next thing you know, you wake up, and there’s another $2 trillion [market] that you weren’t in,” he says.
Markets were little changed on Sunday ahead of a busy week for investors, who can expect another flood of corporate earnings, economic data and comments from central bankers. Meanwhile, upper-house parliamentary election results from Japan could ripple through global bond markets and jolt U.S. Treasury yields.
U.S. stocks signaled a calmness on Sunday night that belied a busy week ahead that includes a flood of corporate earnings, economic data and comments from central bankers.
Futures tied to the Dow Jones Industrial Average ticked up 44 points, or 010%, reversing an earlier dip. S&P 500 futures were up 0.11%, and Nasdaq futures rose 0.17%, also turning higher.
The yield on the 10-year Treasury edged down 1.1 basis points to 4.42%. The U.S. dollar was flat against the euro and down 0.22% against the yen, after upper-house parliamentary elections in Japan delivered a disastrous blow to Prime Minister Shigeru Ishiba’s coalition.
Earlier forecasts for a poor result for Ishiba had already sent Japanese government bond yields to multi-year highs as investors expected the election to clear the way for more government spending and tax cuts.
Japan’s stock and bond markets are closed Monday, meaning U.S. Treasury yields may see a delayed response to the election later in the week. Higher Japanese yields could make U.S. debt less attractive to local investors, who have typically been big Treasury buyers.
Gold edged up 0.15% to $3,363.20 per ounce. U.S. oil prices rose 0.19% to $67.47 per barrel, and Brent crude climbed 0.12% to $69.36.
After big banks and Netflix reported quarterly earnings last week, more tech giants are due. Results for Tesla and Google parent Alphabet come out on Wednesday, while Intel reports on Thursday.
Among economic reports that are scheduled are two key housing datasets: existing home sales on Wednesday and new home sales on Thursday. They come amid growing signs of cracks in the housing market.
On Tuesday, Federal Reserve Chairman Jerome Powell and Governor Michelle Bowman are due to speak at a banking conference.
That’s as President Donald Trump and the White House have continued to wage a pressure campaign against Powell over rates and renovations at the central bank’s headquarters.
A combination of Wall Street capital, corporate adoption, and a deepening supply crisis is quietly forging a new future for the world’s most important blockchain.
Taylor Nissi is a senior VP and wealth advisor at the wealth management firm Farther.
He shared his top tips he would give to clients navigating recent market volatility amid tariffs.
Nissi said everyone should have three buckets: emergency fund, growth strategy, and retirement plan.
This as-told-to essay is based on a conversation with Taylor Nissi, a wealth advisor at Farther. It has been edited for length and clarity.
It's important that people have a financial plan they can refer to during times of economic uncertainty.
In the current climate, people may want to reevaluate their risk strategies for their investment portfolios and cash management.
As a wealth advisor, it's my job to help both small business owners and employees through this time of economic uncertainty. Here are my top tips.
Make a plan and prioritize your emergency fund
We like to say you should have three buckets. The first bucket is your emergency fund, the second is your taxable growth strategy, and the third is your long-term retirement plan.
Having a financial plan gives people a reference point to return to during market fluctuations. It can help with decision-making in times of high anxiety.
Everyone should prioritize building their emergency fund or "first bucket." Your emergency fund is a way to prepare for market risk and life risk.
If your household has one income, you should have at least six months saved in your emergency fund. If you have two incomes — either two income earners, one person with two incomes, or a person with one income and a trust fund — that number could drop to three months.
Any other money you know you'll spend in the next 24 months, a college tuition to pay or a house down payment, for example, should all be added to your emergency fund.
This money should be held somewhere that it can be easily converted to cash without affecting its market price. You want something safe, easy to access, and earning a little interest: High-yield savings accounts, money market accounts, or short-term CDs are all good.
If you're not coping, remove volatile assets like stocks and add bonds
The "second bucket" is your taxable growth strategy: investments to help your money grow, even in accounts where you pay taxes, like a regular brokerage account. We've been talking with a lot of clients about how they felt when the market crashed in early April. Our clients hold a lot of wealth in stocks and were very uncomfortable.
If clients were very stressed or couldn't sleep at night, then we'd look at their "second bucket" and change the allocation of their portfolio to more bonds and fewer stocks.
However, we'd also tell people that selling stocks and buying bonds can impact your long-term financial goals. If you sell stocks when prices are down, you lock in those losses. Buying bonds instead may mean you miss out if the stocks rebound.
If you were emotionally OK during a volatile market, I'd say continue buying stocks. They're the best way to compound wealth. You want to buy companies with strong balance sheets and a strong moat around them.
Do not make reactionary portfolio decisions
If you make an emotional decision to sell everything and go to cash, there could be a knock-on impact on achieving your financial goals.
If my clients call me and tell me they want to sell everything, I generally try to walk them back, share historical data about why that might not be a good idea, and tell them to sleep on it.
Taking your money out of the market, say the S&P 500, when you're most uncomfortable and returning after a couple of days will reduce your annual average returns.
Knowing when to invest back in is the hard part. The best days in the market often come immediately after the worst days. So if you take your money out on the worst day, and wait for some kind of "all clear sign," you will almost certainly miss the best days.
I talk a lot about what we learned through the 2008 financial crisis. A lot of the people who got hurt the most were the people who reacted emotionally.
Consider long-term investments
If you're younger, under 50, I'd advise clients to own mostly stocks in their "third bucket," their retirement savings plan. Stocks have much more growth potential compared to bonds. If you didn't cope emotionally with what happened in early April, you could adjust to having fewer stocks and more bonds, but that will have a downstream impact.
If you are nearing retirement, you should be thinking about moving some of your "third bucket" assets into more stable investments. Or if you cannot handle the market swings, think about building a more stable and less growth-oriented portfolio.
I always try to help my clients who are getting ready to retire be conscious of the "sequence of returns" risk. This is when you have to pull money out of your retirement fund during bad market conditions, which can drain your savings faster than you planned for.
If you retire during a market decline, you'll be forced to sell assets at a discount rather than their fully appreciated value, which will decrease your future value. Selling investments while they're down means you'll have less money left to grow in the future, so your total retirement fund shrinks faster.
If you're preparing to retire in the next two or three years, your third bucket should have an emergency fund of its own. You want to have two years of expenses in cash in addition to the emergency fund you already have. It will protect you against stagflation and market uncertainty.
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