On April 16, 2025, a government meeting in Imperial County focused on the rising fees associated with investment funds managed by Audax and Ares. The discussions highlighted significant increases in management costs, primarily driven by higher interest expenses due to rising interest rates.

The meeting began with a detailed breakdown of the fees for both funds. Ares's fees have escalated to nearly $400,000, while Audax's fees reached approximately $356,000. The primary components of these fees include a stable management fee of 1.25% on invested capital, minor fund expenses, and a substantial increase in interest expenses. The latter has surged from just under $122,000 in 2022 to $280,000 in 2024, reflecting the broader economic environment where interest rates have risen sharply.

The discussion emphasized that while higher leverage can enhance returns, it also increases risk. Audax, for instance, has been utilizing about 66% leverage, which is significantly higher than Ares's 31%. This strategy has yielded an internal rate of return (IRR) of 14.6% for Audax compared to Ares's 8.1%. However, the increased leverage also raises the stakes, as any defaults on loans could adversely affect returns.

Concerns were raised about the implications of these rising costs and the liquidity of such investments. Board members noted the importance of understanding the actual returns in dollar terms, rather than just focusing on percentage returns. The conversation underscored the need for ongoing education regarding the complexities and risks associated with these investment strategies.

In conclusion, the meeting served as a critical reminder of the financial landscape's volatility and the necessity for prudent management of leveraged investments. As interest rates continue to fluctuate, the board will need to remain vigilant in assessing both the risks and potential returns of their investment strategies. Future discussions will aim to provide clearer insights into the actual financial outcomes of these investments, ensuring that board members are well-informed about the implications of their financial decisions.