YouSaid · the spoken record

Ken Kencel

lines on the record: 110
first: 2023-03-31
most recent: 2023-03-31
sittings or episodes: 1
sources: podcast

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“If you think about it, if we've financed 30 deals as we have with many leading private equity firms, we start out on the five-yard line, right? In other words, we've done 30 documents with them, right? I mean, we don't need to recreate the docs, right? So we've got personal chemistry and history.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Want to go to partners that when we bring a deal to them, we know they're going to be there, right? And if you've financed 20, 30, 40, 50 deals with that firm over the past 20 years as we have, we've become, in many respects, the go-to partner of many, many of these private equity firms now. And it's a huge advantage, right? Because if you think about if you're a private equity fund and you're going to try to buy a transaction, you're competing to buy a business, right? And you need financing, you need committed financing. Are you going to go to a firm that has done 30 deals with you over the last 20 years? And you know is going to be there? Or are you going to try a new guy, right? You're going to go where you've got a relationship and you've got a history.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“It's really good for deal flow. And in fact, what we're seeing in the current environment is that those 270 private equity funds where we're a limited partner and sit on their advisory boards are increasingly consolidating their lending relationships, right? Because they're saying, you know what?”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right Exactly right. We have a separate team that does that, right? So they are managing our investments in private equity firms and co-investing in those deals And part of their goal is to assist the lending side in understanding who's doing it the best. What industries are they doing it? And ultimately making sure that we're connected on the lending side with how we can finance their deals.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“It starts with the fact that we have investments in over two hundred seventy mid market private equity funds. So, what does that do for us? It gives us tremendous insight into the performance. And so we do all that research. We understand their focus. We obviously see what industries they invest in. We see their IRRs, their returns they generate. We invest with the best. And then we look to do other things with them. So we're a limited partner. We may co-invest in the equity in some of those deals. But equally as important, We now understand the firm. We have an ongoing relationship. We sit on the advisory board today of 200 U.S. private equity firms on their advisory board.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, interestingly, so here's the angle and the difference between us and virtually any of our peers. If you look at most of our peers in private credit, certainly the large ones, they all have their own dedicated private equity arms, right? So if you look at the publicly traded asset managers, they have private credit, but then they also have a control private equity arm that actually does deals, right? So in some respects, you could argue competing against themselves a little bit, right? I mean, they're buying companies, but then they're financing in large part private equity firms that are competing to buy those very same companies, right? Not always. Occasionally. In our case, we don't have a control private equity business, right? Our private equity business is partner-oriented.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Growth in the underlying portfolio companies because those private equity firms see their role as really driving that growth. And our role, obviously, is to be a good partner for them.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“The private equity firm that's buying the business is already talking to us about the next acquisition, the next opportunity, the next geographic expansion. So what they're bringing to the table really is equity and looking for us to be a full-scale partner of theirs providing that financing. And so the model, if you will, isn't just, oh, we lend money to these guys and we walk away and we hope they don't breach a covenant. The model today is no, no, no. We're buying off on the strategy of growth. How can we be an important and very strategic partner of that private investment firm as they grow the business? And I'll give you an example. At the time of our financing, our average company is about $40 to $50 million in cash flow. Yet our portfolio today, you know, obviously several years on from when we financed the original deal, our portfolio today is approaching $70 million in average cash flow of a business.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Very involved. And I think that is in many respects a byproduct of the private equity business today, which has changed dramatically. So, you know, when you think about Barry 20, 25 years ago, private equity firms were buying businesses, putting up 10% equity, buying companies for six, seven, eight times cash flow. Private investment firms buying and growing businesses, creating value through growth, through acquiring smaller players. I look at a company like Diligent. When we first finance that business, it was doing 20 million a year in cash flow. It's doing 200 plus million in cash flow today. So the model today is a growth model. And with that growth comes a much closer relationship with the lender. So in most of our deals today,”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Oil goes up. Oil and gas businesses do well. It goes down. It takes everybody down. We like businesses where we can do our homework. We can finance strong management teams backed by leading private equity firms. And that's where we've been for our history.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Secure information, ability to update on a regular basis. You have a board meeting and you want to update the materials five minutes before the meeting. You downloaded that into their site. And so they are the leader in that space. So market leaders. Recurring revenue, recurring cash flow, information services, software, healthcare, distribution, logistics, business services, but away from businesses that are very volatile, right? Because volatility brings all sorts of challenges, liquidity issues, issues with respect to wiping out underlying equity value or businesses that frankly we could be completely right on the credit, but wrong on the commodity, right?”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Subscription model. Correct. By the way, not revenue-based, cash flow-based. In other words, we're not lending to kind of pie in the sky venture capital businesses. We're financing real companies that are the lifeblood of the U.S. economy, healthcare, where major financing provider to healthcare businesses, right? We financed as an example orthopedic practice buildup, a large scale practice that is providing healthcare services to individuals and is a leading practice in the New York area. We finance that business. We financed us, you mentioned software, a firm called Diligent. We have been a financing partner of them for years. So they're used to keep information secure for boards and endowments and other public and private investment boards, optical scanning.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“50 million to 100 million in cash flow, maybe as small as 25 million, but significant companies, market leaders in industries and with demonstrated track records of strong historical growth. So what do we mean by that? So software is a service business, right? So, for example, a business that provides software to banks or to manufacturing companies where the software is actually embedded in the business, right? Highly unlikely to switch providers.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“So we like market leading businesses, so we like businesses that are in their niche, you know, one or two player in terms of their business. We like businesses that are really what I would call traditional middle market companies. So what does that really mean? We don't like the micro companies, right? Companies with $3,000, $4 million a year in cash flow. Frankly, we saw in the GFC, those businesses were much more heavily impacted, right? So we want businesses that are typically”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Burden, or they're struggling as a result of inability to pass on price increases or problems with dealing with the rise in rates or the consumer. They're probably not going to be businesses that are being sold today. So the businesses that we are seeing and are coming to market are higher quality. And so overall, I would argue that the current environment for us is really a golden age for our ability to lend to higher quality businesses, by the way, with lower leverage, right? Because you can't leverage, you can't lend it six times leverage today when rates are 11% versus 6%. So now leverage is lower. Covenants are more in favor of lenders like ourselves. And I think, frankly, what we're seeing play out today in the banking industry will only enhance that dynamic.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“So well capitalized, conservative structures, covenants. And so the rise in rates has been beneficial to our investors, but it is not caused broad-based issues in our portfolio. So we're sitting in a great place. Track record, performance, portfolio doing well. Lots of liquidity. We continue to raise capital. And investors, institutions see that. And as a result, gravitate toward the better quality manager. So today our yields on our funds are at the highest levels they've ever been in our history. Our portfolio remains in very solid shape. We have a very, very small number of names even in our kind of watch list category. And we're seeing, interestingly enough, and this is, I think, a bit of a surprise, the more challenged businesses are actually not coming to market today, right? If you've got a company and they're struggling under their interest.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Whatever the substitute for library. That's right. Sofer. So, what we saw was that. Not only did online base rates go up about 450 basis points, maybe more today. Spreads widened, and so that very same loan, a six to seven percent loan today is yielding in our portfolio reflects that. Our yield now is 11% plus. So better returns for our investors. Now, conversely. You've got to look at the companies and say, can they handle 11% interest, right? Well, because we were a very conservative lender and because we were going into transactions with very reasonable leverage, in fact, our average equity in our transactions has been running about 55, 60% equity.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“So, our loans today are yielding 11 to 12%. So the very same loan that we did a year ago at 6 to 7 percent. Is now yielding for our investors 11 to 12%. So is it?”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is kind of what I said earlier about performance attracts capital, right? Sure. So the lesser performers, I think, struggled during COVID. And I'd say 2022 is the culmination of that because not only did you have COVID, but now you've got rising interest rates. And so if you're financing marginal businesses, suddenly the cost of their loan. The good news is... Our interest rate goes up with rising. All of our loans are floating rate. Oh, really? I was going to.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“We perform extremely well. The portfolio does well, and investors take note of that. And TIA takes note of that as our largest investor. And so their allocations and investors' interest in us as a private credit manager Grow exponentially. And so you see our capital raising. You mentioned $11 billion last year. It was about $12 billion a year before that and a significant number prior to that. So during COVID, we have raised well over $30 billion from TIA and other investors. Performance”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“We actually did not have a full scale default during COVID. That's impressive. Which is pretty interesting, right? When you think about, now why is that? Well, we financed high quality businesses. We don't invest in oil and gas in restaurants and retail and more volatile businesses. We stay away from all that, right? So we focus on quality. We focus on market leaders. We partner with private equity firms that themselves have a great track record that focus on the kind of industries where we do invest, which is technology, in healthcare, in business services, in market leaders in those areas, distribution, logistics. So we go through COVID.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, the past three years. And what it set the stage for was investors really looking carefully at private credit managers and saying, gee, you know, there's been this rush to private credit. We need to really look deeper at performance and track record. It's all well and good when everything's going up and the market environment's good and credit's flowing. But when things get more difficult, and certainly they did for everyone during COVID, how do they manage? To grow the business, and how is their portfolio performing in essentially an economy that was basically frozen? And I think that what our investors saw is that, number one, our portfolio held up incredibly well.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think that 2022 in many respects, and I would say COVID in general, certainly the last three years of COVID, have really been a watershed for our firm. And I think a lot of it has to do with investors recognizing that how we invest and the advantages we have and the ability to deliver attractive risk adjusted returns because of our scale, our differentiated private equity relationships. And the fact that we've been doing this a long time really all came together in COVID. So it's not just 2022. I would say it's basically been.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Market leading business in the US, a market leading business in Europe, and now collectively we now have a global private credit manager that can provide financing to cross-border transactions, can deliver a global solution to our investors, right? We have an investor that says, you know, I like Europe. I like the U.S. Can you give me a U.S.-European global private capital solution? And obviously now we can do that.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Back in 2010, 2011. So we saw an opportunity to really partner with a leader in the same business as us. And so what we did really is take Churchill, which today is a top three lender in the U.S. middle market. We do over $11 billion of investment per year and over almost 400 companies. And we saw with ArcMon an ability to essentially take that model and partner with a very same market-leading business in Europe. And we formed a holding company. Called Naveen Private Capital that basically is a $67 billion parent company that myself and the CEO of Arkmont cohead. And so we've taken”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“In the United States, entrepreneurial had been part of a big firm at one point, had spun out from that firm, were very much focused on high quality conservative credits, primarily private equity financed and owned businesses. So a mirror image in many respects of what we were doing in the U.S. middle market, they were doing in the mid and upper middle market in Europe. And because Europe has been roughly five to ten years behind the US in terms of that bank transition that I described, it was an ability to participate in essentially the same transition that's been going on, the consolidation. Of course, we just saw another consolidation with Credit Suisse into UBS. So Europe going through a very similar bank retrenchment as it relates to direct lending. Arcmont, one of the early adopters in Europe, they actually launched their firm.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“They do. And in fact, when we started looking at potential partners, and I mean partners in a very real sense, we looked at pretty much all the direct lenders in Europe. And what we saw in Arcma was, in many respects, the carbon copy of us.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Our fantastic drivers of knowledge and relationships and deal flow to finance those deals with those private equity firms. So today we manage over 270 private equity fund commitments and co-invest alongside those investors. Interestingly enough, that business, our business today. Is virtually identical to the business, but much bigger than the business we had at Indo Suez over 20 years ago, meaning you're doing lending, you're co-investing in the equity. But what we didn't have We really step back and looked at it, we didn't have Europe, right? We didn't have an ability to do what we do in the context of a European market that was in many respects developing very rapidly and probably five years behind the US.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, sure. So, you know, we, you know, over the course of our time as part of Naveen, it's been a fantastic partnership. We've had great support from 1st Roger Ferguson, the former CEO, and now to Sunday Brown Duckett, who's current CEO of TIAA, and the CIO, and then also the CIO as well. What we saw was that we were really not truly a global private credit manager. We were 100% focused on managing investments in the U.S. About three or four years into our business, TIA actually moved all of the management of their private equity fund commitments, all of the management of their private equity co-investments. And so we went from being just a private debt investor to”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Know probably 10, maybe 20% of investors that we would meet with that would really be allocating. To private credit. Today, 90% of the investors we meet with have not only allocated to private credit, but they have a plan to increase their allocation to private credit. So what I've been able to have a kind of a front row seat to during my career was this tremendous transition. From the mid market lending business being really a bank led business, and then kind of had an interim stop at GE Capital, where it was more of kind of a finance company, if you will. And then really accelerating over the last 15, 20 years of being really an asset management business, in some respects, no different than private equity. In fact, some private equity firms have private credit arms that manage credit as well as equity.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. And, you know, it's funny. When I was on the road in the early days, talk about even post-GFC, you'd meet with large-scale institutions and you'd talk about senior secured loans, private lending, covenants, reasonable leverage, et cetera, et cetera. And they would look at you and say, well, that's all fantastic and sounds really interesting and the risk adjusted returns look really good, but we don't really know where to put it, right? In other words, it's not private equity And it's not traditional fixed income, you know, like investment grade fixed income. And so it sat in this kind of middle ground. And, you know, it took a while before larger institutions really accepted that this could be a very attractive place to earn very good risk adjusted returns. In early days, it was...”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“So, in that sense, it's very performance driven. Meaning the best managers attract capital, which was not the case in the banking world. Two, the investments are held over a broad range of institutional investors and highly diversified because of the nature of how we fund our loans. They're not held by one fund. In our case, they're held by separately managed accounts, commingled funds, publicly registered vehicles, et cetera. So healthier in the sense that the risk is more diversified. And then thirdly, I would say, in the case of our business, we have a number of real advantages over our competitors and over banks that give us, I think, a better, an ability to deliver better outcomes for our investors, including the fact that TIAA is our largest investor, invests directly alongside Every investor in our firm.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Investors globally. So, when you think about the individual exposure to a specific name in our funds, it represents less than one half of 1% of the portfolio. So those investors are getting an incredibly diversified, and I would argue lower risk profile that if, for example, one bank makes a $400 million loan and holds the whole thing on their balance sheet.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“About the model today and really coming out of the GFC is if you look at the best private credit managers today, The first thing you see is that we compete for capital based on performance, right? So we attract investors based on delivering solid risk-adjusted returns as opposed to banks that are basically looking to make loans to drive short-term earnings. So I would say that the transition away from banks has helped diversify the investments in private credits. What do I mean by that? If you look at our funds today, we manage about $46 billion in capital at Churchill today, and we'll talk about the acquisition that Naveen did of Arcmont in a few minutes. But at Churchill, the historical business, we manage that capital on behalf of over 1,500.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right Well, the first answer is it's very different in a number of ways. But I think fundamentally better, and let me explain what I mean by that. So if you went back to kind of the bank era when banks were doing these mid-market loans, what you'd see is that whether it's Chase Manhattan or Chemical Bank or JP Morgan or whoever, what you would see is these banks would make a loan and they would hold virtually all that loan on their balance sheet. So you would see pretty high concentrations of $100,000, $200 million, $300 million, all essentially sitting on a single balance sheet of the bank. So obviously risk managers and CROs were very focused on how do we manage that risk and diversify that credit risk that they were taking on in mid-market companies.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Sits on our board today, and I could see his vision for where he wanted to grow this business. And it was completely aligned with mine. And so the opportunity to relaunch effectively my firm with our name, by the way, which is kind of nice, with my partners. And by the way, all of my partners ultimately joined me, all my founding partners joined me to join as an affiliate. On behalf of millions of college and university professors and teachers is something that means a lot to me.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Was going to be a tremendous need for significant capital. And so joining a firm that had, that was really an asset owner and that could actually invest their own balance sheet alongside third-party investors was going to be a key to being able to grow the business. In the case of the firm that we ultimately partnered with, interestingly, TIA had just acquired New Veen. So they had not only did they have a balance sheet and were a significant investor in private credit. In fact, TIAA is the second largest investor in private credit in the world. Wow. So we found a good partner. But they also owned an asset management platform. So they had institutional distribution and the ability to raise capital from third parties globally. What we saw, and I've formed a relationship back in 2014-15 with Jose Maniah, who is now the CEO of Nuveen, and actually still...”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“And now it wasn't a matter of, oh, we're going to invest $10 or $20 or $30 million in a private credit deal. It was we're going to be the lead lender in a $400 million deal. And so what I felt was that.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Be in control of that dynamic, be where I was, which was a founder and an owner of my own firm, was really where my heart was. And so, you know, I went to David and Bill in 2014. We had kind of served out our three-year term there, and there was an opportunity to do that, and they were incredibly gracious in allowing me to do that. And for me, I also saw the business changing. And what I was seeing was that the ability to deliver large amounts of capital to really operate like a bank right now, we saw this transition starting in late 90s and early 2000s, but at this point, you were seeing large-scale institutions allocate significant dollars to private credit, right? And it became a very well accepted asset class. Why? Because the banks had been leaving. These mid-sized companies needed financing.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“A couple things. One was I found that once you're a founder and you have a lot more control over your culture and your people and the environment and really the growth dynamics in your business, that I miss that. I missed to me my business and really the business that I've done throughout my career is really all about the people. You know, you see firms. I mean, capital is a commodity, right? So at the end of the day, it's really about building, developing, and growing your people. And so for me, the ability to go back and really”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“I did approach them, and it quickly became clear that the fit was very, very good. It was something that gave them a broader platform in terms of the ability to provide private credit. And frankly, it was an area that all the analysts were saying was going to be an era of tremendous growth. So we did the deal in 2011, and I kind of gave up my baby, if you will. So I went from being a founder and an owner. Being more of an employee and a member of Carlisle. And for several years, we operated as part of their direct lending platform.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Than we saw back in 2007, 2008, 2009. That being said, Stuck tornadoing. We stayed focused on high quality companies. Our track record and performance through the GFC was very, very good. And so when we came out of the GFC, our private equity owners were starting to think, okay, well, how do we monetize this investment we made? And fortunately for us, there were a number of large-scale alternative asset managers like Carlisle that were looking to grow in private credit. Carlisle was in the midst of going public at that point. And I'd known David and Bill, the founders, for well over almost two decades. And so I approached them about the opportunity having Churchill become the private credit business within the broader Carlisle group.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“So interestingly enough, somewhat different from today, right? Because if you think back then, we were one of only a handful of private credit firms. The amount of liquidity or dry powder in our world was much more limited. The banks were essentially out of the business, right? They weren't lending at that point. So while there was a lot of dry powder and private equity, probably back then 200 billion or so of liquidity, the private equity firms really did not have a large amount of private debt to finance their deals. There were a handful of us, right? So, you know, we saw some opportunities, but I would say that it's really only been in the last 10 years where you've seen this tremendous growth in private credit. So today, for example, the situation is very different, right? Yes, there's a lot of liquidity in private equity, but there's also a lot of liquidity in private credit to be able to finance those transactions. So a very different dynamic.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if you think about it, their bankers were saying to them, you know, you're great in private equity. You've got a big real estate platform. By the way, you're not really in this private credit business, and that's really going to be a growth area. You should have a platform there. And that's really what was the genesis for our sale to Carlisle.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“It was a huge and growing market. And in fact, asset managers were going to become the giants of that business, including firms like Carlisle and KKR and others. And so to the extent that we could build a best-in-class private credit direct lending platform, there would be buyers of that business, because again, private equity firms always build things to sell them, right? And so five years into that growth of our business, we sold a firm to Carlisle in 2011. Carlisle was in the process of going public.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is amazing to think about, right? So, one stop along the way. So, in subsequent to that business at Indosuez, I launched my own firm in 2006. And this is now further into that bank consolidation dynamic. And we raised about $500 million of private equity. And the thesis was, which turned out to be completely true, is that these banks were going to move away from the business of actually lending money to mid-sized companies”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Initially, by some of these more esoteric businesses like Indosue's Capital and, of course, GE Capital had a lending business very similar. But over time, it ultimately got filled by private capital managers, direct lenders, firms that were raising institutional capital to invest in private companies. and beginning really in the 90s. But as that underserved dynamic continue to grow and as the middle market continued to grow, I mean, interestingly, the US middle market is the third largest economy in the world.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“In the ability of banks to consolidate and form their own investment banking and their own securities businesses, led banks to what effectively was a higher margin business. Rather than put all their capital in a single loan and hold two, three, four, five hundred million dollars of a loan, they could actually arrange to distribute the loan. And so what we saw over that period of time was that banks became much more in the moving business, if you will, as opposed to being in the storage business. That makes a lot of sense. So, you know, where did that void get filled? It got filled ultimately.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“Is the investment banking affiliate? Gotcha. Right. So, in other words, Chase said, wait a minute, we can be an investment bank. We're going to form our own investment banking operation. In their case, it was called Chase Securities. It's now JPMorgan Securities. Heard of them. But what was happening is that wave of mergers, the elimination of Glass-Steagall.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source
“That's exactly right. In fact, as things subsequently played out, what you saw is that wave of bank consolidation that I referred to. Ultimately brought banks. I mentioned Chase, for example, started with their Section 20 when we launched their High Yield business.”
2023-03-31 · Masters in Business · Ken Kencel on the Rise of Private Capital · IDENTIFIED FROM THE TRANSCRIPT · source