YouSaid · the spoken record

Kipp deVeer

lines on the record: 90
first: 2023-07-24
most recent: 2023-07-24
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“I started my career in particular probably as a less patient person than perhaps I've grown into in time. Maybe that's age. But yeah, it's back to this don't be careless. Don't be impatient. Listen to other people. I think it all goes together. Just my philosophy in terms of how I think about how I manage myself, but also how I manage people has changed a lot.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“I had a summer job doing something every single summer from age 12 going forward. So for me, it was there's nothing that will be able to hold off hard work and determination. I mean, it was really get a job every summer. I sold shoes. I worked in a clothing store. I caddied. I mean, I did every worked in restaurants, did every crummy job you could possibly kind of like half of them anyway. But just that ethos of like know what you want, work hard for it and stick to it. That was something that was pretty often heard in my family with my brother and I.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“I've had some great people who I've worked for, but the reality is the three guys who I really am with in New York that are my 20 plus year partners, Mike and Mike and Mitch, are really by far most impactful people in my career. And we've built a lot of great businesses at Aries together. They're close friends, incredibly loyal. And we, I think, still are seen as a little bit of a unit, as I mentioned earlier. We're sort of out building this thing 20 years ago when we were 30. So we all sort of mentored each other. It was more like being brothers than it was like being mentors.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“My dad's definitely been very impactful in terms of my professional life. I sort of grew up with an investment banker for a dad, so a lot of this stuff started coming in through osmosis when I was a kid and just thinking about frankly the upside and the downside of this job, right? There's a lot of travel, it's hard work. You got to put in a lot of do's before you get somewhere understanding that at a young age through a lot of conversations that I had with him and frankly observations that I had with him being my friend.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Know just because we all started as sponsor finance guys, I think there's too much comfort gained by the oh we're only in at 40% LTV. And you're learning that right now in every asset class, things even in private markets, can revalue very quickly. So you have to have a lot of conviction around where you are in a capital structure whenever you choose to write a check to be there because you may not feel like you're the last line of defense, but you can become the last line of defense really quickly. So I think it's just that to me just feels careless.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm a very organized, thoughtful person. My wife would probably even say to a fault. I probably think too much. I don't like people who are quick to rush to decisions. I actually like hearing people around me. It's something I think I've learned to be a lot better at over the years. I feel reasonably convicted when I get to an answer, even if it's quickly. And most of the time I've been fortunate and then I can get to the right answer pretty quickly. But I think I've learned the value of actually hearing more voices in the room and spending a little bit more time with those voices.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was fortunate that my dad bought a house in Vale in 1995, so to get there a lot. I grew up skiing in Killington, but we ended up out west and we had that place. He just sold it, unfortunately, but we ski there a lot. And actually a couple of my partners were there too. So that's probably my favorite spot.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Nothing out there for us that's, gosh, we really need this, you know, in terms of acquisitions in the future. We had 1,300 employees pre-COVID and we came out of COVID with 2,800 employees. So this year for us is a little bit of a people actually really need to integrate and know each other better than they maybe do when they were sitting in front of their Zoom screens during the pandemic. And especially with Asia, we were thrilled with SSG, but part of the plan was you guys are going to come to New York and London a lot and we're going to go to Asia a lot and that didn't happen for two years. So that's what we're doing right now.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“My partner, Mike, who's the CEO, has charted everybody on getting to 500 billion of AUM as a growth target, which I think is great and achievable. We filled a lot of the gaps that I think that we had in the last five years. We don't have that many more flags to plant, right? I think we're geographically where we want to be with the possible exception of being on the ground in Tokyo. I think we're happy with the businesses that we're in when we talk to our LPs and our investors. There are not a lot of things that they look at in alternatives that we don't do.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“You know what's happened over the years? And it's one of the things that's driven the growth in private credit to this really happened during the GFC. Most of our PMs on the liquid side want to be in larger deals where they know there's liquidity because they have to trade those portfolios. And I mean, the GFC was extraordinary, but we'd be like, oh, great, opportunistic, let's go buy $10 million of bank debt in this issuer, the price off the sheet from somebody is 75. And we go try to buy, not sell, buy $10 million of bank debt at $75, and we get like $3 million. I mean, there's just nothing trading. So that's a world of artificial liquidity. What we focus on is trying to be really diversified and be in situations where we know that these smallish position size can actually trade. Because particularly in CLOs, which is the largest part of our liquid business, you need to be able to trade your portfolio. It's really important. You can't get.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Prepared for it. And the only thing that's going to solve the lack of cash flow servicing a lot of debt is new liquidity. And if you have liquidity and you can drive terms on outcomes, I think you're going to be pretty impactful. And if you don't have liquidity, I don't think you're going to be very impactful at all.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that liquidity will be unbelievably important in this credit contraction to dictate good outcomes. So we are reserving liquidity in a way that we probably didn't feel that we needed to in the past. There's always this talk about covenants and what happens with covenants going away. The covenants are nice to have. They allow you to reprice risk along the way. We still have them in most of our middle market deals. But the big quality companies syndicated loan market, et cetera, the high old more, they don't have covenants. So the restructurings are all driven by capital and who has capital and who doesn't. And I think this will be that type of a cycle on steroids a little bit. And the reason for that is the higher rates. People are surprised by how quickly and how significantly rates increased.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Know what, there's always a little bit of wake up call. I mean, I think one of the other large alternatives firms had a bunch of newspaper articles that they probably didn't like much around one of their non-traded reds. We have a couple of those too. So that freaked us out. Luckily, we've had really not a lot of redemptions in ours. But things like that carry over, right? And these were all great firms. If something happens to Blackstone or Apollo or KKR, we're going to get the same question. What does your exposure look like? How do you guys think about this? Yeah, there's an interrelatedness of eight or ten of these companies for sure.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Try to be pretty diversified in terms of how and where we raise money, right? So we have good diversification from sovereigns, pensions, insurance increasingly vibrant. Most of it is long term and locked up. One of the things that we actually know how to do well because we lend money is we know how to borrow money. So a lot of the problems, particularly during the GFC, were folks that were playing in illiquid assets with the wrong leverage facilities that got forced to sell assets at bad prices. That's always been the big risk, right? Is that you have to be a force seller at a bad time? We set ourselves up. So that it's really hard for that to happen. So big existential risks of kind of how we get wound down or something is just, we think about it a lot, but I don't see anything particular there that I'm concerned about.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Companies that probably need capital and extends the duration of equity owners who don't want to monetize right now because it's a bad environment to do that.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Two really interesting things we can do in all of our businesses this year are just brand new deals with low leverage and high pricing. That's the easy part. The other thing that I think is going to happen all year in all of these assets, opportunistic, real estate, credit, and even P to a certain degree, because lenders are going to be feeling less comfortable with higher rates and because owners are not going to want to sell, companies are going to need cash. So the most likely, and I think exciting part of this year will be kind of that we're just calling it that wedge piece, probably in every market, 15% type rate of return or better. You can structure it in a lot of different ways. It can be second lien. It can be mezzanine. It can be preferred, but you're targeting longer-term money that can compound at 15% that's coming in at pretty good attachment points. Pays down senior lenders a little bit and makes them feel better, creates capital for.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“So that business for us, focusing on healthy companies and healthy geographies feels a lot like the U.S., right? You're talking about sophisticated large economies with real legal structures in place that allow for lending. You have to be excited about Asia because of the growth prospect there. That being said, it's very noisy over there right now, right? For a lot of reasons, and COVID was part of that. But I think there's a lot of figuring out to do. We have a very nice business there that's actually distributed pretty broadly across China, Southeast Asia, India, et cetera. The one place that we're not that we'd like to be investing is Japan. So that's one of the things that we're going to be trying to figure out here over the next five years. I'm personally less comfortable with that market just because I've spent less time there, which is one of the reasons to do the acquisition and bring in people who have been there a long time who are experts there.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“More comfortable personally, obviously living in and around New York with the US than I am with anything else. We think the European market is a great market, actually, for what we do because it's just less institutionalized. We are one of the early folks. We've got a real leadership position there that we can grow into. It's a little bit different in a couple ways. The banks won't quite exit the market completely because there's still some French banks and they're nationalistic about lending in France and there are German banks that want to lend in Germany and Swedish banks that want to lend in Sweden. So it's a little less easy to totally disintermediate banks in Europe. You can have your own view on the economies there. Europe isn't one thing. The US isn't necessarily one thing either, even though we call ourselves one thing. There's a big difference between doing deals in the UK versus doing deals in Italy, of which we do very few.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I think we have the biggest team in the space, and we can really accelerate growth behind that. It's a very large market. We think it's a $3,000, $4 trillion addressable market.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, probably seven or eight years ago, we started hiring folks from banks who used to do this on principal desks to build a broad effort in the non-corporate lending business. And what's nice is we do the same thing we do on the corporate side. So if you have a pool of consumer loans, we can be the lender, we can be the mezzanine, or we can buy the assets free and clear and get somebody else to leverage them more. So we can create returns in that space. For investors, we've done a lot of missionary work with our investors to explain it the same way that we did direct lending years ago. It started with our CLO investing business and third-party CLOs. And they're like, oh, structured credit. I don't want any. Isn't that what blew up the world 10 years ago? Once you take them down the path of the underwriting and the strategy and the fact that a lot of it is private and directly originated, it feels a lot like corporate direct lending. It's just not to company.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“The other business that we're really excited about that were growing very quickly, but we've been at it seven or eight years is our one non-corporate credit business that we call alternative credit. We have liquid credit, which buys bank loans and high yield. We have the two direct lending businesses, one in the U.S. and one in Europe, but all credit really is everything that's not a company, but generates cash flows. So pick your ground lease, net lease, single family rental, cell towers, medical receivables, consumer finance assets, all this stuff used to be bank assets on trading desks, and they're not.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“The new business is very easy from a corporate direct line. It's five to five and a half times debt to EBITDA, quality of EBITDA is actually good instead of not so good, which it was for years, much better documents, very lender-friendly in that regard, and it's probably a sofer plus $600 or $650 over with fees if you're leading the deal. It's an 11 or 12% return with fees. So it's easy for us. It's pretty exciting vintage. You see a fair amount of people out there saying, oh, it's the golden age of private credits, the greatest time. It is. It's great. It's easy, but I put an asterisk on that because as I say a lot to a lot of people, you can't finance the U.S. economy with senior debt at 12%. You'll create a depression. So it's a nice point in time. Do I think it's going to last for the next four years? No, I don't.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're always going to be needing more people, the busiest people in our direct lending businesses right now are not our New Deal people. They're our portfolio management and restructuring folks because there's just a lot of early signs that even if a company's doing well, companies are not Deleveraging the way that they would hope to. They're getting closer to maturities. And this is true in the large cap market too. Good news is a lot of the 24 maturities have already gotten cleaned up. But if you're a sponsor and you have a maturity in 25, you're starting to talk about it and think about what the resolution is. So even if we're not in distressed or stressed situations, there's a lot of activity in the ongoing portfolio, and that's simply because rates are higher. And companies have less cash flow.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Being so much larger than the last time we went through a significant financial correction, how do you think about how you'll manage through that muddle through period just with the assets in your existing portfolios?”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Basically, we brought a couple of our funds in to buy a couple billion dollar portfolio of what I view as pretty high quality assets from a bank that probably weren't thrilled to sell them at a good price. Price works for us too in terms of how we structure the transaction. But I think it's going to be interesting to see if there is a lot of follow-on activity there or not. It looked like we might have a banking crisis again. And then all of a sudden it kind of went away. I'm hopeful that doesn't come back and folks feel good about deposits and all of that. So, I wouldn't be surprised if there's a little more noise from some of these smaller banks.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Depends on the asset class. So, in real estate, yes, in corporates not so much, and then some of what's gone on with the banks has been an interesting start, right? Like bought a large portfolio from a bank who had had some headlines that probably they didn't like so much. But what's going on with the banks is they're selling really high quality assets as close to par as they possibly can, right? Because that's how they create liquidity and don't do themselves a disservice from a capital standpoint. We think that bank trade is going to continue for a while, right? That's great, great for us.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“But the conversations that most lenders in equity are having today are, even though companies are doing well and it's not your fault owner, it is kind of your problem. You're the one that needs to lead the resolution if you don't want to lead a resolution. You can give us those assets and we'll take them at half of what you paid. That's not our goal. But I think the remainder of this year and even into next year is going to be a lot of that. It's going to be a lot of just muddling through overlevered assets and owners who aren't quite sure what to do about that.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, to try to keep it very simple, well, it does two things it slows transaction activity, right? So deal flow is very light in all of our businesses, but you have this huge installed base of capital, as I was saying, around the secondaries piece of folks who are like, I'm not quite sure where to go with this. And because our lending businesses are so large, we feel reasonably good about how we're positioned, even if companies have too much debt because we feel that we've got a lot of room for error. So just to put some numbers around it, private equity firm paid 15 times EBITDA for a company when base rates were zero. We lent them five and a half times. All of a sudden, base rates were much higher. They have less cash flow. They can't deleverage. I'm still in at 35% attachment point. I don't think that equity owner is going to want to walk away from company building infrastructure asset, whatever it is.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll try to not play economists, but play more of credit person. This is an interesting period of time, I think. And it's true of credit, but it's true if you're a private equity person or a real estate person or infra person. And it's kind of true across any of the geographies. Our view now is the economy is actually doing pretty well. So the portfolio company performance that we see is good. That being said, we had low rates for too long that encouraged a lot of bad behavior. And sometimes that means companies have too much debt, even if they're doing well. Sometimes, if you're the owner of that company or asset, it means that you paid too much.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Love to turn to some of your thoughts on the current markets and maybe kick that off with just rising rates, inflation risk, as you said, not terribly dissimilar from 20 years ago. How are you thinking about investing in these markets?”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, part of that's competition. The biggest concern that private equity firms have is, is my partner going to be a friendly performing credit type person? Are they going to flip the coin and turn into a distressed person, right? So we need to draw very clear lines between our performing lending businesses and our opportunistic businesses. And look, there are five or six large firms like Aries, whether it's Blackstone or KKR, that have credit businesses and have private equity businesses. And it just kind of is what it is these days. So the key to it is organize yourselves well, make it very clear when you're coming into a situation what the expectation is and how you'll likely behave in different circumstances and stick to it. And if you don't, you'll lose your relationships and other people win that business and you won't.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Curious how the competition kind of co-opetition works. Like you mentioned earlier, not surprisingly, you have sponsor coverage, someone's covering Blackstone. They're also a competitor in the credit business. How does that sort of play out when you're in the markets?”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there's six or seven people that we see most of the time on New Deals. It's Blue Owl. It's Gallop Capital. It's KKR Blackstone Sixth Street HPS Pollo. That's the competitive set. Different people skew their businesses one way more than others, right? Gallub's a very active Unitranch player. They're not very active in junior capital. HPS has a vibrant, large cap junior capital business. The flavors are a little different, but obviously it's all ice cream. We're all doing the same thing.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think if you took real estate credit, it's something like $3,030,500 names total. Our special sauce, we have access to private equity CEOs, we have access to the mortgage-backed securities market. We have access to what's going on on the ground in India, right? So building a culture that figures out how to make that stuff all talk to each other in a really effective way. I personally spend a lot of my time doing that, flying around spending time with certainly my teams in credit, but also the rest of the firm so that I can use that advantage that we have to really drive better results.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Says, does this fit the investment criteria? And if it does, it gets an allocation based on available capital. And we don't really have to do this anymore. We'll cap things. We really don't like running portfolios probably more than 2.5% positions just from an overall risk management perspective. But we're big enough now that most of the allocations to funds are less than 1%. It's one of the things our investors, I think, like the most about us and that we can deploy, but we can also deploy in a very diversified way that others can't because of the amount of deal flow that we have.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Direct lining basically is a $20 billion BDC. We've got private funds that are both separate accounts and drawdown style commingled funds. One set of those is focused on senior debt. One of them is focused on junior. The team originates for the benefit of all the investors. So if we underwrite a $600 million unit tranche loan, we have a pretty strict allocation policy, right? It just looks at every vehicle it could go into.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Change too with some of the competition and direct lending. We actually don't see any Delta in pricing or terms for the most part between a 50 million EBITDA company and a $250 million EBITDA company. Leverage levels are about the same, pricing's about the same. And the reason for that is there are a lot of small competitors that can do a $200 million deal together with one or two other people. There are not that many people that can actually show leadership in a four or five billion dollar financing where you say you're going to hold a billion and a half. So the competition at the top end actually really kind of accrues to us a benefit.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have this perception that I don't like very much, which is folks think that we don't want to work on small deals anymore, which is not the case. That being said, we have found that there's real benefit to being with larger issuers because they tend to have better credit profiles. They're just larger businesses. They have more diverse revenue streams. They aren't concentrated to single products or a couple of products. They're not in just a smallish geography. They're either national or multinational companies. They tend to have better management teams. So what you've seen from us over the years is we've taken our weighted average EBITDA numbers up substantially and doing larger transactions. Some of that's just math, right? If you do four times a bigger number, the math skews that the weighted average goes up. So we publish a median as well, which is smaller, but kind of the middle of the strike zone these days, probably 100 to 200 million of EBITDA. But we'll play on both sides of that. What's interesting, and this is.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the simplest one is private equity transaction where we co invest with private equity, right? So it's $300 million Mezdel on a $30 million co-invest alongside sponsor XYZ. That's the most common place. But in a lot of our non-sponsored deals, what we find is we're the only real institutional capital because your counterparties are family businesses, entrepreneurs, folks who have scraped it together and generated a lot of sweat equity, and then they're either trying to build a plant. They're trying to buy a competitor. And while they have money on paper, they probably don't actually have any real money. They don't want to sell their company because they believe there's upside. So they look to somebody like us that says, we can provide some sort of flexible debt plus some sort of equity participation to help you accomplish what you're trying to accomplish. Those are probably the top two.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Trenches that get clubbed up, and we'll do those too. But we do believe that you have to have junior capital and equity in the portfolio because the lending business does generate losses. You have to have something, again, that's not asymmetric in risk that actually offers upside participation to offset what inevitably are going to be some losses in a lending business. And we've been fortunate by employing that approach a long time. We've actually been able to generate more gains in that business than losses. So of course we have a cumulative default charge off ratio, which is very, very low, like under five and ten basis points for both senior and junior assets. But when you take those de minimis losses and you put equity gains and upside on top of it, we've actually generated a business that's building NAV, if you want to think about it that way.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're pretty flexible. So, I mean, if you look at our private credit portfolios, it's probably 60% sort of senior and stretch senior. We were one of the early people to kind of develop the Unitranch, which was just the blending of senior and junior risk into a single security. We did it at the beginning because we audited ourselves. And one of the toughest places to play, in our opinion, is in small company mezzanine. You're not secured. You can get put to the side very quickly in a difficult situation. And we said, I think we can mitigate some of that downside risk if we just collapse the senior and the mezzo into a single tranche. We just maximize downside protection. We don't sacrifice much in terms of the return, but we think we decrease the losses. So we love the Unitranch business. We'll do that from $100 million Unitranch to $3 and $4 billion unit.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Another thing that we've learned you can't price bad credit. You can try, but you probably won't be right. The thing that's tricky about credit is as a totally asymmetric risk profile. You get paid fees and you get paid a coupon and hopefully you get paid back. If you're wrong, you lose all your money. So it's all about being defensive. We'll have the conversation around that early read, for instance. Somebody would be like, yeah, I understand it's a little bit hairy. It has some aspects that maybe are less traditional, whatever way they want to describe it. They're like, I priced it up. So instead of it being, you know, sofer plus 600, it's sofer plus 900. And most of the time we're like, I don't think that's enough. That's something that we've learned over the years is if something has credit risks that present downside that is substantial getting an extra 300 basis points for three years before you have a huge problem is not going to solve it.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“And gas home building. So if you decompose the LCD index, it's really obvious where the defaults are. They're in six to ten industries. And most of the other industries tend to outperform. So we definitely have an industry lean that is consistent towards defensive, towards growth, towards higher free cash flow and away from cyclicals because you just don't get paid to be there in a lending business.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Certain characteristics are good. I think so. I mean, I think we're good at identifying what we like and what we don't like. The direct lending business today is blessed by not being a benchmark investor. We're an absolute return investor. What that means, if you think through that in a very simple way is you should probably orient yourself towards companies and industries that tended to fault less and you should orient yourself away from companies that tend to create more defaults. We have a good friend who used to be the chief risk officer of Wells Fargo and during the GFC came in and he's like, I need to sit down with you guys. Your portfolio is performing much, much better than everyone else's and I don't understand why. And this is kind of where we started with him. And we said it's easy. We have more companies with inelastic demand curbs, whether it's healthcare, business services, software, and we have fewer cyclicals oil.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Serious concerns on the due diligence front, most of which you probably already saw yourself and have identified, but it's a way for us to say, I've done five deals like that in my life, and these were things that weren't in your memo that you might want to think about.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a lot of people. And we actually get on the associates and the VPs who are learning that those are going to be the two most important calls that they're going to be on all week because this is how they're going to learn how to underwrite and how to do good things and not bad things. But it's quite a scene. We've got our boardroom in New York. We've got the boardroom in LA. We've got everybody up on TVs. And because we've all worked together a long time, it can be a little bit of mayhem. We try to keep it organized, but it can be a little bit of mayhem. So, when a new deal comes in, that's an early vetting of do we like the company? Do we like the situation?”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Between Monday and Thursday. Deal count in the US probably is 3,000. So out of the 3,000, I'd say about 10 a week, i.e. 500 actually get written up. The other 25 are kind of chucked for whatever reason. We run a little bit of a unique process that we've been running since the Indo days. I think it's driven by the fact that we have a lot of old Drexel people around and we've all worked for a lot of Drexel people. We don't have a behind-the-door investment committee. Everybody in our organization literally sits in on our investment committees.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's been the same since we started. If you're a deal person, you get a bunch of stuff in from your origination sources, your choice as to what you think has merit and what doesn't, right? So most of the originations getting driven by at the very least a principle, but really principal MD and partner level people, rent. And I say originators because everyone understands that word that knows our business, but just to be totally clear, we don't have an origination only team. All of our people do everything. So everyone's an investor. So if you're senior, you're responsible for sourcing, but you work on that deal all the way through. You carry through portfolio management all the way to exit. Some other organizations don't work that way. We're big believers you need to work that way. Deal comes in. You choose whether you like it or not. And if you do, you'll write an eight to 10 page memo that we call an early read, comes in front of everybody on Mondays and Thursdays. Normal course, we probably see 10 of those a week.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is driven so much by bankers and by conferences and all of that that it's as much about covering the intermediaries. If you know enough bankers and you go to enough conferences and you're working on pharma and you're knowledgeable, CEO of that company, when he meets you at a conference or is introduced through a banker, sees you as a very valuable potential counterparty because you actually understand their business, right? A lot of other people just don't have that phone call.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source
“Different people have different views, and it depends who they are. Person who covers Blackstone at Goldman Sachs, like he has one client, right? So it depends who they are. I would argue that if you're covering large cap sponsors that do high volume, the advents or the Premieros, who are Helman Friedman, a couple of those will keep you pretty busy. And those obviously sit with probably our most experienced people. And then if you go down the, I don't want to say value chain. But if you go down to the younger group a little bit, they probably need 20 or 30 sponsors to cover because just the volume isn't there to be as productive as you'd like them to be.”
2023-07-24 · Capital Allocators · Kipp deVeer – The World of Private Credit at Ares (EP.329) · IDENTIFIED FROM THE TRANSCRIPT · source