Ares Management LP and Kayne Anderson Capital Advisors LP are merging to create Ares Kayne Management LP, an alternative investment group whose $113 billion in assets will rank it among the world’s biggest private equity firms.

Ares will pay $2.55 billion to Kayne Anderson’s owners, consisting of $500 million to $750 million in cash and 94.7 million to 107.9 million partnership stock units, according to a regulatory filing July 24. Employees of Ares will own about 50 percent of the new company and Kayne Anderson employees will own about 30 percent, Tony Ressler, Ares’s chief executive officer, said on a conference call July 24.

The two firms, headquartered a block away from each other in Los Angeles, expect to complete the transaction at the end of the year.

The combination brings together Ares’s focus on credit, private equity and real estate with Kayne Anderson’s history of investing in property and energy. It also allows the new firm to tap into a bigger universe of clients than each could access before, confronting a challenge for smaller firms as investors such as public pension systems winnow their dealings with fund managers to contain costs and increase efficiency.

“Large institutions are reducing the number of relationships and are trying to focus their manager selection,” Ressler, who will lead Ares Kayne as CEO, said in an interview Thursday. “We will have a better basket of products to serve our clients for the foreseeable future.”

Holistic Offerings

Ric Kayne will be co-chairman of the firm with Ressler, the companies said in a statement Thursday, and Ares President Mike Arougheti will be its president. Bob Sinnott, Kayne Anderson’s CEO, will become chairman of energy. Almost all of Kayne Anderson’s dealmakers outside of energy will join their respective groups at Ares, according to the statement.

“This combination presents a more holistic view of alternatives -- a broader, more diversified array,” Kayne said in the interview. “We found that Ares had a very complementary set of strategies, and they had developed significant competitive advantages.”

Ressler, 54, and Kayne, who’s in his early 70s, became friends over “150 conversations” before discussing a possible combination of their businesses, Ressler said. During that period, Kayne Anderson signed Ressler up as a client.

Ares, founded in 1997 by former Drexel Burnham Lambert bankers Ressler and John Kissick, specializes in tradable credit, direct lending, private equity and real estate. In January, it completed an acquisition of Energy Investors Funds, adding $4.6 billion in assets and 40 dealmakers to invest in energy infrastructure.

Topping KKR

The merger with Kayne Anderson will further bolster Ares’s energy-related efforts and accelerate its growth after going public last year. Kayne Anderson, which manages $26 billion, has focused on oil and gas operators, energy infrastructure, real estate, middle-market credit, growth private equity and distressed municipal securities since its founding by Kayne and John Anderson in 1984. Anderson died in 2011.

At $113 billion, Ares Kayne would manage more money than KKR & Co., which cousins Henry Kravis and George Roberts started with partner Jerry Kohlberg in 1976. Billionaire Steve Schwarzman’s Blackstone Group LP leads U.S. firms with about $333 billion, followed by Carlyle Group LP at $193 billion and Apollo Global Management LLC at $163 billion.

Moelis & Co. and Bank of America Corp. advised Ares, which also received financing advice from Wells Fargo & Co. and legal advice from Proskauer Rose LLP. Kayne Anderson was advised by JPMorgan Chase & Co. and Paul Hastings LLP.

Bloomberg reported on June 10 that Ares and Kayne Anderson were in talks to merge.