EP21: Ken Kencel on two decades of resilience, relationships, and the road ahead

We started in 2006, right? So it's been 20 years. We got off to a great start. A number of things that we were able to accomplish early on positioned us probably better than might be expected for the GFC, right? We raised significant long-term capital. We put our team in place. We got a lot done in 18 months before the GFC hit, which was helpful to that dynamic. But it did come relatively early 18 months into our tenure. I think it taught me a number of very good lessons. And one of those was, I guess, in a interesting way, prepare for the unexpected. Welcome to Private Capital Call, the podcast with leaders in asset management, investing, and capital markets. I'm your host, Randy Schwimmer. This month we're joined by Ken Kincel, President and CEO of Churchill Lassett Management, a $63 billion private capital manager, providing customized financing solutions to US middle-market private equity firms and their portfolio companies across the capital structure. With over 35 years in the investment industry, Ken is a recognized leader in private credit and a frequent commentator on Bloomberg, CNBC, and the Wall Street Journal. He was named one of private debt investors, 30 changemakers, and recently received a Lifetime Achievement Award from the M&A advisor. Ken also happens to be my longtime business partner and best friend. We've worked together since 2006 and Ken I've known you since 1993. Welcome finally to Private Capital Call. This is my first opportunity to do this with you. I know you've been doing this for a long time and I've watched you with great admiration as you have built your audience and your career doing this among other things. So it's great to get the opportunity to do it with you. And it's fitting because this is our 20th anniversary. So we're celebrating that. And I thought I would actually start by taking you back 20 years. Sure. And we're there. I was there with you. And you may not remember this, but in the summer. So we started the business in 2006. Okay. And interesting time, right? Right before the global financial crisis. And you may not remember this, but in the summer, I think it was June, July of 2007, you called me into your office and you talked about these two hedge funds that Bear Stearns had that were kind of. Okay. I did. I actually remember that. Yeah. And you weren't sure. I remember vividly. You said, I'm not really sure if this is good news. We're going to really have to pay attention to what was going on. And I think and that's classic. Can focus on something because you're so strategic. When you think about starting the business in 2006 and then literally barely a year later, the thing starts to kind of unravel. What was that moment like? And how did surviving the global financial crisis shape your view on risk? Wow. There's a lot there. Well, first of all, I would say that we started in 2006, right? And we got off to a great start. And a number of things that we were able to accomplish early on positioned us probably better than might be expected for the GFC, right? But it did come relatively early, 18 months into our tenure. And I think it taught me a number of very good lessons. Right? I mean, who would have thought that the best laid plans, the most audacious and, frankly, as it turns out in hindsight, as you know, you and I have lived this very, very correct assessment of the way private credit was going to unfold would ultimately test us very early. And, you know, I think it reinforced a recognition that it was incredibly important to focus on the fundamentals. And we have been very much focused on the fundamentals from day one. And if you look at our credit underwriting, our discipline, our approach to how we invest, it really hasn't changed all that. You know, I mean, you would think 20 years, you know, everything's going to evolve. But the fundamentals of what we do, the conservative, rigorous credit analysis, the documentation, the ability and willingness to walk away early if the deal isn't going to be a good fit for us. I think we're all put in place in and around the GFC. We had to. Otherwise, we wouldn't have survived. I think that the other thing though for us that I think was a lesson learned, and you certainly see that in tough times like the GFC is that relationships and who your partners are in deals, whether that's the private equity firm themselves or in many cases early days, other lenders. Let's not forget that when we started doing private credit, the average direct lender was committing 25 million, 40 million, 50 million, 50 was a big ticket. 50 was a big ticket, right? So we were by definition doing deals with other lenders. So we cared a lot about who the other lenders were. I tell the story all the time to you. We joke about, you know, you walk in and you look around and it looks like the bar from Star Wars. You probably aren't the right place, right? So I would say it was clear to me that who you partnered with was as important as the fundamental investment itself. And in our case, we underwrote not just the company, but the sponsor. Right. How do these guys operate in a tough time? Do they walk away? Do they throw the keys on the table or do they lean in? And as you often say, they lean in and do they act as true partners. So I think in that regard, we learned a lot of good lessons in and around the fundamentals and also on the whole dynamics of partnership and the importance of partnership. So let's actually go back to the founding thesis. We both grew up in a banking environment. We were at banks. We were in IRED, regional Chaseman Haddon Bank. We had experience in foreign banks. Yeah. One of the things that was the common theme was that banks just don't do well holding leverage loans, right? That was one of those things that we just kept learning. And the thing that was the founding principle for Churchill was, okay, we think that a different structure will actually make it easier to hold those loans. And the structure was to have a long-term capital, right, and so forth. And also focus on the middle markets. So maybe if you could, for our audience, give us your vision of why the middle market was so critical to starting off there, right? Because we started there. We're still there. Yeah. We got up market. We didn't go down market. We started, why is the middle market so important? Why was it then in your head that this is where we need to be? And today it feels like it's the best place to be. What's going on? Well, we certainly think it's the best place to be. And that regard, we have never wavered to what never wavered from our commitment to the core middle market. And I still believe today, in fact, I would make the argument, it may even be better today than it was 10 or 15 or 20 years ago. I mean, it was always good. But I think it's of anything that dynamics have gotten even further in our favor. So just to roll it back to the banks, look, I think that what changed everything was Glass Deagle, right? At the end of the day, you had these banks that really were kind of outside the window looking in, right? They were like in the picture window looking inside, wanting in on this investment banking and distribution business. Right. And the more attractive investment banking businesses were all those bankers. And the flashy suspenders and the bow ties and we're making all this money and the commercial banks all felt like, gee, you know, we're working hard. We're kind of doing the lending. We're doing the heavy lifting. These guys just, they underwrite to distribute, right? And we can do that, right? That's easier. So I think there was always a desire in the part of the big banks to get into the securities businesses. In fact, a lot of them did, as you recall, I joined Chase in 1993, Post Drexel, and it was all about getting into that high ill bond business, getting into the leverage lending business. And so I think there was always this desire to do that. And what happened really at the end of the day was dismantling of Glass Deagle really allowed them to do it. And then when they started to look at the returns and lending and underwriting to distribute, the returns of being in the moving business, it became pretty clear that the return on equity, the return on capital, the fact that it didn't use as much capital and allowed them to show better ROEs, it became clear to the banks that that's where they wanted to be. And of course, that also kicked off a wave of consolidation. So you had banks getting larger and larger, the ability to underwrite more and more. And ultimately, what that led to was, in many respects, a wholesale retreat from the core business of lending money to middle market companies. So I think the definition has always been pretty clear, but I mean, to put it in context, I define the middle market more broadly as businesses that have not graduated to the liquid credit markets, right? More broadly. Now, there are segments of the middle market. There's lower middle market. These are very small companies that are typically less than 10 million of EBITDA raising capital 50 million or so of financing. There's the large end of the market that is really almost competitive with the syndicated loan market, call it the upper middle market. And oftentimes it's in the syndicated loan market, depending on where the market is. But we always felt that the core middle market, companies with 10% of the market, to 100 million. Large but not so large as to have graduated. But also large enough so that they didn't hold single point risk of having one big customer or one significant product or had a dynamic wear they could be put at risk very easily was always the most attractive place in the market to be. So we've said this for a long time. You know, I've talked about this. I think it's still the best kept seepric is in grid and private credit and it's the space that we think offers the most attractive risk adjusted returns. So that's what we started was we didn't really like companies or businesses that were too small. Right. We never really loved deals to the extent that they started to compete in the syndicated market. Right. Now interestingly enough back then none of us had enough capital to even do that. Right. So in that sense once a company got large enough to do a liquid credit facility graduated graduated and there's no way we could follow them. So it was really more about more of a minimum standard. Right. We want to see businesses with 15 20 million of EBITDA raising credit facilities of 75 100 million or more and that's where we focused. Right. And I still believe today that even though certain direct lenders have kind of moved into that very large upper middle market or syndicated market the dynamics in the core middle market make it very attractive. I like to say that one of our folks coined the term so I'll use hers but it's really the intersection of resilience and return. Okay. Meaning companies are large enough to have resiliency. Yeah. But not so large is to have it impact returns or covenants or structure or leverage because I've heard the arguments before. Well, you know, we're just going to finance bigger companies. Well, if the company's larger that's great and hopefully they're a market leader but it's not so great. If there are no covenants, it's not so great. If leverage is seven times and you're wondering if you're going to make your first interest payment out of the gate. And it's not so great. If the pricing looks more like a syndicated loan and you're not really getting a premium, a liquidity premium for making that loan. So there's a sweet spot. We like to sit in the pocket if you will in that sweet spot. And that's where we've always played. We've always been there from the beginning. It started in 2006 and it's never really changed. And it's turned out that not only the returns and the resilience are there. But the thesis that we had was based on history that the defaults and losses in middle market companies were actually better than the large cap companies. It was one of those revelations to me as we were doing the research because as you know in the capital markets front that was where I started and I uncovered through the rating ages discovery which and we published our first findings and the lead left which is the middle market had better defaults and losses and nobody believed us until they started going into the numbers. And they were like, well, why is that the case? Yeah. Early days. You would think the larger companies would be with more mass bigger, bigger, bigger, better scale. But then when you started to dig into the relationships that those companies had with other lenders, it was not as much of a partnership. Well, look, I think the other dynamic which influences is that those companies go to the syndicated loan market. That market is a bit ask market. Right. At the end of the day, it's okay. If you can get seven times leverage, you do seven times leverage. If you can get a deal with no covenants, great, no covenants, if you can get a deal where you can pay a big dividend, take all your money out, right? Take it all out, right? And so I would say a big influence on the performance is that once that company graduates, it becomes a far more competitive dynamic in one where a lot of the fundamentals that we've learned in direct lending start to fall away. Yeah. Because you have to compete with the syndicated loan market. I think one of the fallacies and I've heard this argument more than once as a view is that, well, you know, we finance bigger companies and therefore they're lower risk and it's better. And it ignores the reality that it's true if you were only competing with other direct lenders that could write billion dollar checks, right? Because there aren't that many of us that can do that, right? So there is a win-in-wing of the competition among the direct lenders. The problem is that once you've graduated, it's not just the direct lenders you're competing with, you're competing with every investment bank with Goldman Sachs and JP Morgan. And they all weigh in with what they think they can sell. And if the markets are buoyant and willing to do it, next thing you know, you're dealing with a lot of leverage. The lowest common denominator. And by the way, the fact that that market tends to be more transactional lends itself to that. Whereas in the middle market, as you know, relationships matter. And the partnership that we form with the private equity firm is incredibly important. Really matters. Let's talk about that. So 20 years ago, we both came to Churchill, you particularly, with private equity relations. Just mind more on the capital markets front. What has changed in 20 years in the nature of the lender and the sponsor? Because all the deals that we do are all private equity banked. What changed particularly coming out of the GFC that you saw that cemented that relationship that we have with those sponsors? Yeah. Well, first of all, obviously the amount of capital that we all have raised enables us to both stay diversified, but also write much bigger checks. So, you know, as I was looting too early and you remember the days, none of us could really write a big check. Right. So scale in the importance of scale has changed the market dramatically. I remember early days when a private equity firm would get a deal and it was okay, well, we've got to get these five guys together and get them on the same page in order to get it done. Right? Today, it's three phone calls. It's two phone calls, maybe one phone call. And we all better be able to deliver the full financing. Otherwise, you are not in the mix. Right. So I would say the importance of scale has become a differentiator in and of itself. Certainly in the core metal market, if you want to be relevant and you want to see the best deal flow, you have to deliver the full financing. So delivery, consistency and scalability have changed dramatically. And that's actually, in some respects, help from a competitive standpoint. Right. In the sense that I know this is kind of odd to say, but and I've said this before to investors, but it's actually gotten a little bit less crowded in the core metal market. I mean, if you went back to 13, 14, 15, 16, there was this clubbing that went on. Right. So you could kind of hang in there with your, yeah, you could hang in there with your 40 or 50 million and find a few deals. I would say that's very hard to do today. So what's happened is you got a lot of new entrance, a lot of lenders and competitors in the lower end of the market. Yep. Because it's 40, 25, 50 million and lots of guys can do that, particularly new entrance. And in the large end of the market, you have a limited number of direct lenders, but you have a large number of underwriters and banks, investment banks that will do those deals too. So what's ironically happened is in the core metal market, the competition is somewhat less today. Right. And I would say the other dynamic that has changed is that relationships, four relationships, the recognition that private equity has gone from, it was a little bit more transactional when, you know, 20 years ago, certainly 25, 30 years ago. I mean, it was like go out and talk to all the banks, get the best proposal, go with that guy. It has to be because you couldn't find the right relationship that could do it all. Correct. But now every deal is effectively entering into a growth project with that sponsor. Right. In other words, how you're going to grow the business? What is it? Geographed? It's not easy. It's not easy. And virtually every deal today that gets done in the middle market is a growth deal. I remember the days when it was all about, well, if you can get seven times leverage, and you put up 15% equity, and you just ran the business for a few years, leverage would get you your return. That's not the case anymore. Nobody's doing deals to get returns just based on leverage. So I would argue that almost every deal we do now, you probably feel the same way, is a growth deal. Yeah. Right. I can't even remember the last time we saw a deal when we looked at it and said the sponsor is paying six times for the business. It's not growing at all. And they're just going to manage it. Right. They'd hopefully pay down debt. And then ultimately get a return. So what does that mean? What it means is that the partnership, the relationship that you have with the sponsor makes you a long term partner invested in helping to grow that business. And so the better you are at helping them achieve that growth. Right. The more user friendly you are, the easier you are to deal with. The fact that you've done 30 deals with that private equity sponsor and the documentation is pretty much a given. All of those things make you more desirable as a partner. And all of those things have really benefited us. Right. As one of the one of the founding families of private credit 20 years ago. So let's if you can do a sentence or two on other strategies now that this we've gone from credit solutions to private capital solutions. Talk just for a minute about how it's important to not just be a credit provider, but an equity provider, a secondaire's provider. Talk about your - That evolution. - Yeah, well, that's my favorite topic, as you know. So it's interesting, you know, for the first 10 years of our life, we were essentially middle market cash flow direct lenders. And that's really where the market was. I mean, a lot of this other lending the banks were doing was still sitting with the banks, right, asset-based lending and equipment financing. So we were in the space that most lenders were in, which is cash flow lending to mid-market businesses. In our case, the core metal market. But given how important private equity was and continues to be, and the relationships with private equity are to our business. And as we looked at ways to expand our business, one of the things that became clear to me is that it was probably gonna be more, at least 10 years ago. It was probably gonna be more of a horizontal growth opportunity than it was a vertical growth opportunity. So what do I mean by that? But meaning, rather than try to add other lending capabilities that by definition competed with the low-cost provider, the banks, adding a capability that was a natural for us was adding private equity in junior capital. And so we always saw that. We saw that at TIA when we did the deal. And it worked so well for the first five years. Our good friend Jose Monella, who I'm having dinner with tonight. Our good friend Jose Monella came to me and said, "Hey, you guys are working so incredibly well with these private equity and junior capital team. What if we put it together?" And the first thing I said to him was, I think that makes sense, but we need to keep the team as its own integral team. We keep the private equity team doing what they do. It wasn't a matter of just having everybody do everything. We wanted to keep those relationships specialized. Keep them specialized. Keep them focused on being able to deliver an array of junior capital and private equity solutions obviously oversee the LP relationships. Of which there were how many? Well, today there are 350 relationships. There are 250 advisory board seats. And while we were working with them prior to the integration in 2020, when that business moved over to our business and we actually had the benefit of firsthand transparency and experience with that team. And having it all be part of literally the same firm, it was, as you know, transformative. And it changed everything. Because now not only were we the middle market lender that everybody had worked with and knew and trusted, but we were also an LP in their fund. We were a junior capital provider. We were an ability to do mezzanine debt and financing. And then subsequently we became an active player in the secondary's market. And of course, we had this large portfolio of private equity fund commitment. So there is no question that not only did it unlock tremendous opportunities to even grow and expand those relationships, but it also created a very, very differentiated access point for our investors. Because now we could go to investors and say, we can deliver to you the whole of the middle market, the core middle market up and down the balance sheet. And that made us incredibly valuable to our private equity relationships. Suddenly it was like, wait a minute, not only these guys in LP, and not only have we worked with them for the last decade, but they can do anything we need. - It is a one stop shop. - It truly is a one stop shop. Now there may be a couple stops in Charlotte and New York and Chicago, but at the end of the day, we were able to give them whatever they need, whatever tool they need from a capital standpoint to help them get it done. Whether it's G, it's a big equity check, we could use a co-investor. Whether it's, we're gonna do a CV, one of our better companies, we wanna raise some capital, would you guys look at it? Well, G, you're already an investor in the fund. Of course we're gonna show you the CV. Or do we need mesonene capital? So we became even more valuable because of our ability to deliver a broader array of solutions and we also became, in many respects, more valuable to our investors. Because now we could show them that we could give them the broad- - Full access. And it's fact that was a big factor not to get ahead of ourselves, but that was a big factor with Tommasik when they decided to partner with us in the middle market and it was a big part of it was the fact that we could give them unprecedented access to mid-market tokens. - Yeah, let's go actually go to Tommasik. So one of the things that you mentioned with scale and partnerships and this week, it's also timely conversation given the new being and their news in terms of, again, of partnership and building a much bigger business, how do you think about the way, I mean, we were very fortunate to be with the right partner 10 years ago with TIA in Naveen and they have delivered everything and then some in terms of what the expectations and hopes were. How does a firm go about now, if you think about where we are, 2026 and the next 10 years about building through partnership versus organically? It seems crazy to think you can do this on your own. You can't. And how do you think about it as the CEO about picking the right partnerships and building a business that is all aligned as you build it? - Yeah, so I wouldn't dismiss the organic part of this. Obviously, we've grown a lot organically. - That's true. - And certainly the tailwinds that we got from our partnership with TIA in Naveen were a big part of that, both in terms of the balance sheet and their commitments to, not just to our strategies directly, but to the funds that we've raised. I mean, we've massively benefited from that in a question. I would say, though, that the organic growth has really been staying true to our core principles, doing what we do and doing it well, raising investor capital and scaling the business dramatically over the last decade. And in many respects, utilizing the TIA capital but diversifying away from it. In other words, I think, you know, you and I've had this conversation before and I'm actually having breakfast tomorrow with Emily Weiner, who's the I/O there. And one of the things that she says often is that the fact that we diversified away from TIA enabled us to really deliver more for them. And it was by bringing in third party investors, we were able to actually do larger deals and grow the pie, absolutely. So I think there is an organic element here that I wouldn't wanna overlook in TIA is a big reason for that organic development and it's been critical to our growth. But there are three partnerships that I would say fundamentally reshaped our business. We live over the last 10 years. And in particular, we think about how we've managed to grow the business well beyond what we would've been, even with just TIA. So the first obviously is our partnership with them. But they brought Nuvine and I would say that what Nuvine has brought is a global distribution footprint that has enabled us to reach investors in geographies that would be much more harder to reach, the continuity, the fact that they are and have been a significant presence in Japan, in Korea, in Australia. I mean, Connell, Europe, in particularly in Scandinavia and the UK where we have big investor concentrations. I think that the TIA piece was capital, which was great. But the Nuvine piece was okay, how do you raise that third party capital? And I think when you look at how we've grown and you know the 70% of our investor base is non-US. Yeah, crazy. People are surprised by that. Because I think, oh TIA, it's all U.S. and the reality is most of our third party money, certainly a large portion of it is non-US. And I think it would have been very hard to access that capital without Nuvine, right? Without a number of key relationships that were instrumental in getting us to that next level. I mentioned the UK, Scandinavia, Denmark in particular, the Middle East, Australia, Australian Super, obviously a large client of ours, Korea, Japan. Japan's been a big market for us. There were new Vine folks in those markets that really helped bring us to the market. And while I think flying over the world is an important part of what I do and what you do, the reality is that if we didn't have a presence in those markets, despite my 230,000 air miles last year alone and yours as well, it would have been much harder to do. So I think that it wasn't just TIA, it was in Nuvine. So that, I would say the TIA Nuvine ecosystem was really important. And the stability that consistent commitment of TIA brought to it, the second partnership, which really was born of the realities that we were never going to do this again in Europe in our lifetime, right? Maybe at some point, but it wasn't going to happen in the next five years when we barked on this three years ago. And that was finding a partner in Europe that did what we did with tremendous, almost breathtaking similarity and with an investor base that really doubled our access and our connectivity. With no overlap. With no almost no overlap. I'll never forget the day that I think it was Chris or one of our folks came into my office and said, we've done the analysis of their investors. We finally got there less, right? And then we shared our list. And we looked at the list and we said, wait a minute here, there's no overlap. None. Almost not. I think there were like three names. Okay. But that's like 700. I had a 700. So it doubled our investor base and it gave us a real sales force now. So prior to that, you know, we had really worked with the generalist at Nuvine, but with the Archmont deal, we got a specialist sales force that could really go out and market our products. And then. And then of course the most recent, most recent partnership is 100 point and to mosque. Now 100 point isn't as recent as it seems, right? Because we made a strategic investment, we TI made a strategic investment at 100 point. I'm going to say it's been four or five years ago now, right? Maybe five years ago. To be a large LP and to be having interest in their GP. And that was a great fit because they were investing in the GPs themselves through the steaks business. Obviously had a lot of connectivity and history with Bennett Goodman, Bennett and I went back to Drexel days. I remember when Mike Arpie came to me and said he was leaving Carlisle and how he loved working with us and and hope that we would potentially partner with him and low and bottom. Relationships. Relationships. Right. Here we are. And I remember Mike saying to me, well, I just left Carlisle, I just talked to David and I'm super excited about this new opportunity. And I said, great. So what is it? You said I can't tell you. You literally said I'm partnering with Mr. Big. That's what he called them. And so obviously things played out. And then a few years ago, Bennett came to me and said, would you ever consider doing a GP steaks deal where we took a stake in you? Right? So it's kind of like a mutual. Yeah. Steaks thing. And I said, well, that steaks deal alone. Probably we wouldn't necessarily be ideal for our partners. But if we could combine that and he said, well, I've got just the solution for you. It's called a staple. But I'd never heard that. No, I hadn't. And he said, well, we'll do a staple. And I said, well, what's a staple? And he said, well, that that's when we come in and do a GP stake. And we bring another partner along in the GP, but they actually commit capital as an LP as well. A programmatic capital over a long period of time. And so that turned out to be ultimately domestic. We travel the world looking for the best partner. We found them. They're the largest investor in private equity in the world. And it's turned out to be a true, fantastic match. And so, domestic has already committed to a number of our strategies. And the words of their CEO and CIO, they want a long term relationship to work with us to invest in the US environmental market in the European, the European environmental market through ARCMON as well. And they could have done the deal with anyone. And very grateful that they chose to do that deal with us. And feel like we have TIA on the on the one hand, particularly in credit, although they're big and private equity as well. And of course, domestic large investor in private equity in global. So it's been, you know, those are probably the three partnerships that have shaped who we are. And obviously have helped drive our success. So, Ken, when you think about the next, let's say, 10 years and a lot, you mentioned 70% of our capital overseas and a significant amount of that was institutional. So the growth and fact in growth in the industry has been mostly institutional. And think what the institutional market has done is it's created a framework that works for investors, sophisticated investors, to find a path to get accessibility to private capital. But the next stage seems to be to then go to the retail market. A lot of our collaborators out there have raised a lot of money in the retail market. And it does feel like there is a lot of capital to be accessed in that retail market. Sure does. But it's not quite the same is it in terms of how that retail market behaves, what their expectations are. You know that better than any of us. I do. I'm discovering it. Yes, you're discovering it. I'm discovering it. And so I guess my question to you is, how do you see that next wave of capital playing out? And in particular, how does a manager and how do you want us to position ourselves to make sure that expectations from those investors? The same way we set that those expectations for institutional clients. How do you think about setting expectations for retail clients around private capital? First I would say it's not a bad thing that we probably as much or more than any other manager have been validated by institutional that word. Yep. And in the sense that we have stood the test of time, we've stood the test of challenging market conditions. You alluded to the GFC. That was one of the beginning. Yeah. And we've done it through COVID. We've done it where frankly our fundraising accelerated institutionally. And we've done it through a whole array of other cockroaches and tariffs, tariffs, test polluzos and everything else. Yes. But we've we've invalidated institutionally. So I think that's a good thing. You know, obviously very proud of that. Our numbers are great. We have invested at this point when I think over a thousand deals now in our history. I mean, the numbers are hard to believe, I guess. Yes. Like given we started in a couple of 2000. A copy room. Yep. I mean, that's a whole new stage. Yeah. Copy that. They had to move the copy around in order to fit us in it. That's still amazing. I come in in the morning. I'm like, yep, they moved the copy around. We can now fit in the room. So we were, you know, we've been through the institutional validation process. And that's been an important thing. So what does that mean now, though, I've said this before. So this is not new news. But the last decade, I think, was really the institutionalization of our business, our market. And I think the next 10 years are going to be about the democratization of our market. I mean, if you look at the size and magnitude of private wealth and the opportunity that it represents, it's one of, in my view, the two biggest drivers of the business going forward, the other being insurance, which we'll talk about. But on the private wealth side, just some numbers, right? If you look at private wealth investors today, they represent less than 20% of the AUM, but approximately 50% of the global assets. There's a lot of room to run here. Yep. And that the market, according to various sources, I think Morgan Stanley quotes this, it's a $70 trillion market that is under allocated to alternatives. Yeah. Under allocated to private credit, under allocated to private equity, under allocated to different types of private credit. And all the while, the banks loan, behold, having largely exited the cash flow lending business, largely on the heels of first republic and Silicon Valley bank are now relooking at how much you'll liquid credit, how much private credit, how much you'll liquid loans. They want to keep on their balance sheet more broadly, given that people can punch their way out of on their phone, out of their deposits overnight, which we saw in first republic and a number of other banks. So, you're starting to see banks back away from things like asset-based lending and equipment financing. And so, this private credit dynamic is still in relatively early stages. Do I think that we bring something differentiated to the table I do and what it is is true institutionally validated private credit. And there are a lot of folks out there now raising capital in the space. And I certainly respect them for the amount of capital that they've raised. And they were first movers, early movers, and they've raised a lot of money. But it's also transformed those firms and made them, just the pressure of deployment, has made them focus on large, almost quasi, broadly syndicated liquid loans. And that's where they're playing. So, that's fine. And they want to go there. That's great. The reality is, when you start to look at the fundamentals of those deals, they look like syndicated loans. And by the way, if you're an individual investor, you can get those assets a lot cheaper investing in a primary loan fund. Then investing in a BDC or a vehicle that is basically a private credit wrapper, but with liquid loans dropped in it. So for us, I think what we offer is true private credit, true differentiated sourcing, true access to the core middle market, credit that is really directly underwritten with covenants, and structure, and a true differentiation in pricing of 150 to 250 basis points, you're getting better pricing, you're getting real covenants, you're not living in cove light land. And you're getting more reasonable leverage that we have to live with because we're underwriting to hold. I said, look, that world is said you before is in that world's in the moving business. I mean, we're in the storage business. So if we're going to store those loans, they have to hold up. So I think we can offer something different in the private wealth world. And now it's all about education and marketing. If anything, our competitors have gotten the education and the marketing they got to that early and they've been really good at that. Now for us, we've always had the goods, if you will, meaning in terms of the quality and the performance and the underlying investments, institutionally validated as I've said earlier. Now I think it's more messaging and education. And so as you know, we're adding folks that can help tell the story. We're adding folks on the marketing side that can help us articulate the differences between what we do and maybe what kind of credit that's being done by our peers. We're doing that on the private equity side as well. So I think it's a huge opportunity. And I think it'll fuel the growth of our firm over the next decade. And I do think that trying to escape the notion of private capital, particularly in the market, being illiquid does the investor disservice. Because if you're trying to sell a concept of private credit as a liquid option, that's a public credit option. And you're giving up all of the benefits of true private credit because it doesn't trade. because you can't sell it instantly in a market panic. Right. It stays the values, stay resilient through those, and therefore you don't want to leave that comfortable eye and you got to, you want to stay there and understand why it's a good place in many cases, a shelter from the storm. Yeah, absolutely. If we're delivering on our promise and we're doing it consistently with high quality, there is a certain amount of ill-equity investors should be comfortable with because, frankly, as I've said, they shouldn't really want to sell our asset. They should say, "Well, why would I sell that?" Jealting 8, 9%, an investor can live with some ill-equity and we just need to explain to them why and how that plays into their long-term benefit. I guess the next question I have for you is over the next 20. What is it going to take to be a winner? Is it going to be different things? Is it the same things? It was easy to look like a winner when an investor is a zero. That's not the case now and it probably won't be the case. Right. Let me back up for a minute on the second point that I was answering because it'll play into what it's going to take in the future and that's insurance. Now, we have a partnership with TIA and that's our insurance powerful and the insurance company and we have other insurance partnerships. But I think that for us, even given the number of insurance relationships we have, I think there's a lot more we can do in insurance. I think insurance, you saw the numbers. Virtually every insurance company in the United States is talking about increasing their allocation to private credit. You've got to understand their requirements from a capital standpoint, which we do, living with TIA, whether you're talking about rated notes or CFOs or CLOs or other types of vehicles that play into their capital requirements than their capital allocations. But they're a huge source of opportunity. They, obviously, you've seen most alternative private equity and private credit managers lean into insurance partnerships, getting those insurance companies either as businesses that they own or forming investments or structuring investments into those firms. We've done the same thing. I think we're still in the early days of those partnerships. And so I think private wealth and insurance are going to be the two biggest drivers of growth in our business. So with that in mind, and you asked me the question about what does that mean for the next 20 years? What I think it means is that those two areas in particular are going to be big drivers of growth, private wealth and insurance. The requirements in those areas are somewhat different. In private wealth, it's a brand. Got to have a brand. Got to recognize a brand. Individual investors want to know that they're investing with a long term respected brand. Advisors want to know that to recommend their customers. The beauty, of course, in our case is we have lots of brands. Yes. Right. We have TIA. Right. We have Naveen soon to have Shroters. Those are long term well respected brands. And of course, Churchill and Archmont as well. So we have an established brand. We have a commitment to and an investment in education and a understanding that district a brand scaled distribution framework to really reach the RIAs, the financial advisors, the broker dealers, a commitment to education and of course an institutionally validated track record. So I think we have all the tools and private wealth to get there to be a significant player. And I would argue that while there have been a handful of firms that have dominated that wealth area, we are in my view, in my humble view, the next large player in private wealth, meaning we have all the tools. We have all the capabilities and certainly a good understanding of of where that market is headed. Not to say we haven't been in that market and we haven't had good performance because we have, but I think the opportunity in terms of moving the needle for us in private wealth is significant and insurance, which requires us somewhat different skill set, is also an area where I think can really have an impact. So those are the areas of opportunity. What separates the leaders and what is it going to take over the next 20 years to really continue to create success will be 90 years old by the end of the 80s or so. But I think it's really four things. The continued importance of scale. I don't think that's going away. I think and it's scale with diversification too, right? The fact that when we fund a senior loan, we're funding that loan with 40, 50 separate vehicles, right? That ensures diversification. So it's scale, but it's scale within the context of diversification. It's not, oh, we have scale and we're going to have one fund put the $500 million into a single fund. We don't like that. We want to be diversified. So, but it is scale. Because in the first instance, if you can't deliver the solution at scale, right? You're not even in the game. The second really relates to raising capital net is track record. You know, you've got to have a great track record and ideally one that's been built over a long period of time. And we do. It's hard to believe my friend. We've been doing this for 20 years. So having that pre GFC, even though it was 18 months, is put you in a small group of very small careers, a very small group. And of course, we all know each other now. Yeah. There's a handful of us left. So, yeah, I'd say track record and low losses and all that and the ability to articulate that to investors. I would say differentiated sourcing huge. And in our case, a massive advantage. I mean, I can't, and I know you feel the same way as you built our origination business, we leaned into that advantage. It's huge. You know, the fact that we're an LP in 350 plus private equity funds and we're on the advisory board of 250 funds, maybe more in this rotor, shorter's opportunity. Sure. That has been transformation. And so we can truly go to investors and say, we not only have done business with this sponsor for the last 20 years, actually we're an LP in the fund. What does that mean? We've access to performance data. We've access to their portfolio. We've access to where they've done well and where they haven't done well. Well, they've done well in healthcare. They've done well in consumer products. If they've done well in business services, where have they excelled and we can utilize all that information. And by the way, increasingly, and more importantly with AI, as you know, we're leaning into AI in a major way, particularly as it relates to our portfolio. And take that information and use it to differentiate ourselves even further based upon those relationships and the access to information that we have. I'd like to ask the question I make this point when you and I are sitting in investor meetings and it's not insignificant. If I am one of your largest LPs, I meaning our firm. And we sit on your advisory board. Separate team Jason and Anne and Derek and team. But if we are on your advisory board and we are a large LP and we have a proven 20 year history of being a leader in the private credit space, are you going to show us your opportunities? Is something we're doing everything else right? Of course you are. You are. Yeah. Yeah. So I'd say sourcing. And then I think the alignment of TIAA as a big LP helps a lot because it not only helps their investing their investing in every deal we do. So if you're an investor coming into our fund, you know that trillion plus parent company AAA is also investing alongside as well as also also investing alongside. And so what that means is that investors take great confidence in the fact that we have skin in the game. No question about it. And so when you think about the future, I think what you see is all of those key factors being critical to growth. You have opportunity in private wealth and in insurance. And at the end of the day, it's still all about partnerships and people. Don't forget that all those advantages go away. If you don't have partnerships and you haven't informed strong partnerships and they certainly go away. If you don't have the best people doing what they do, whether it's investment people, whether it's operations, finance, marketing and communications. Don't want to leave Jess and Sherry out of the mix here or Megan. And so it's all about the people and it's all about making sure that your best in class. I can't emphasize that enough. The end of the day, you and I both share a common commitment. And that is I think we're humanists. Yes, absolutely. You know, in the sense that we understand that you can have all the analysis and all the models and all the financial tools in the toolkit. But if you're not getting it right with the people, you won't endure. So culture as a business scales is in many respects the hardest part. Let's talk about that because it's one of the things I'm most proud of, building with you. And it does come from the top. And we share this. What is culture? When you think about preserving our culture, the thing that we've built, what does that mean? Like, why is it so important? And it was one of our foundation founding principles. And we were looking for a partner. We were like, we got to find somebody who's committed to our asset class. We got to find somebody who's got capacity to help us grow. But we've got to find somebody who's got the right culture. And we did. What is the church of culture? And why is it so important? And how do you protect it as we grow? Well, you know, it's interesting. I've had it described to me in a number of different ways. But the best way to experience it is to like walk in our lobby. Okay. And what you feel, Emily, when you're said this to me, you know, our CIO at TIA, investors have said this to me. They've said, from the moment we walk into your firm. We have a number of things that, and I've heard this again and again, it starts with people are present, meaning they value the relationship and you can see that in how you are treated, how you are addressed, how we address each other, how we work together, how collaborative we are in the way that we approach decision making. It's funny, you know, people talk about cultural the time and it's a broad term and applies to a lot of dynamics, but the truth of the matter is it starts at the top. And as much as you'd like to think it doesn't, it does. It starts at the top. It means that I need to be a walking definition of how we operate. Because if I'm not operating that way, everybody looks at me or you or anyone on the executive committee and says, well, these guys talk about cultural the time, but they don't live at that. And so they're basically telling us, you don't really have to operate that way. And so I think in that sense, it has to be intentional, it has to be reinforced. And although it sounds very aspirational, it's actually behavioral. I mean, you have to live it. And how do we make decisions? We had a tough decision to make a few weeks ago, right? And we were literally split down the middle on a deal. That's true. Never happens. But it was one of the first times that's happened the long time. And we followed our approach was look, if we all can't agree, it's unanimous or we're not doing it, right? Because we're not going to look back and say, well, we agreed on the deal and you guys didn't and we shouldn't have done it or we should have done it. So it's how we navigate challenges. It's our core values. It's how we live our professional lives, empowering our people, ensuring that they're well positioned for success, thinking about them, and ultimately my job, as I like to say, a servant leader is ultimately removing the barriers that are in their way. Meaning big stuff, right? And that's a really big part of my job. People get frustrated if they want to be the best and they can't. There's something blocking their way. Something blocking their way. Okay? And I think a big part of my job is putting myself in their shoes and understanding when they're not able to do their best and figuring out how we're going to fix this and how we're going to, whether it's more resources, whether it's a better work dynamic, how do we fix it? And sometimes it's moving people out that maybe aren't conducive to them being the culture, to the culture and to being successful. So I think it's a really, really important question. It's probably the most important thing that we do is hiring and perpetrating this culture, which I'm sure will be around long after we're gone. And it's ultimately, I like to say this and we've talked about this, every single person we hire, either strengthens our culture or delutes our at the end of the day. Right? And so we got to be really careful. We got to hire the right people. We've got to take the time and the effort to get it right. We probably over interview people at some level. And I think about the times we didn't over interview them sometimes that didn't go so well. Correct. And by the way, sometimes it was, they looked so good on paper that we just said, okay, well, a couple of years ago, they were going to be right. And the honest answer is somebody can look great on paper. But if they're not the right cultural fit, it's never going to work. But it does start at the top. And there's a lot of pressure to grow and expand. And frankly, if you look at our head count overall, we run pretty lean. We have 260 plus billion dollars. Yeah, I mean, we're 60 some odd billion and we're 230 people here in the US business. That's not a lot. In fact, most of our peers have two or three times or more a number of people. So we do run lean, but we give a lot of responsibility and we make sure that we get it right. And when we don't get it right, when I think about the mistakes that we fixed, I think that you get a lot of credit when you fix those mistakes because people don't necessarily think that you know what's going on. And when you show them that you do, even if it takes a while, you get it now. You saw it. And they did something about it. So I think it's important. When you don't have a good fit to quote, do something about it. And I think in our case, we've tried to do that. And that can be hard because you and I are people people, people, people, we're people people, right? And so we like people and we want people to be successful and that we want people to achieve. So I think it's a delicate balance, but at the end of the day, the right answer usually becomes very obvious in terms of both hiring and making changes. And I think we've done a very good job. It's exemplified by the success we've had from a people standpoint. I mean, we've had almost no turnover. I think our turnover is like 2% or whatever. We consistently earn more and more and more rewards every year. Right. Last year we had the firm to work in. Best place to work. You know, at the end of the day, it's been an incredibly important part of who we are. It's the reason why I think we've created a lot of value. So as we wrap this amazing conversation up, and by the way, it's been worth the wait 20 years. It has literally been 20 years since we've done it. You know, I was wondering when you were going to actually have me on your show. I know that you have, you know, you have a long line. There's a waiting list. I think you may have jumped. I didn't jump the last yet. No, no, I think I've waited. I waited 20 years for that. You waited plenty for that. But you and I have never sat down to do this. And it's really it's it's it's perfect timing. So for my last question, let's actually go back to 2006 where we opened this conversation. And look, you are not one really to say, Oh, I wish I had done this or wish I had done that. You move forward. But if you were to give yourself one piece of advice back then, what would that be? Well, I'll tell you one thing we both learned very quickly. And that is to expect the unexpected. Correct. I mean, who would have thought that 18 months in with the audacious plan that we had to build this private credit platform? And by the way, there were other guys who raised a lot of money too that aren't around anymore. I could think of a few didn't make it through didn't make it through. How do we do that? And I think we have been extraordinarily resilient. And I think that's the lesson is that we not only expected the unexpected, but we were resilient in understanding how we had to change to be successful. And if I think about those early days and the GFC and how things played out. And as you know, we went through a lot. We had that we call it Churchill 1.0, 2.0 and 3.0. And there's probably a 1.5 and 2.6 along the way. But I think that resiliency is really important. And I say this to my kids and I said this to my daughter the other day, you have to be willing to fail or experience some element of failure and to be resilient against that failure. Meaning I mean, I think some of the things that we went through, they were never outright failures because we kept going. Right. But we've been through, I don't know if it's nine lives, but we've been through a few. There was raising this great amount of capital, having what looked like the best partners in the world and suddenly, Bear Stearns doesn't exist anymore. Yeah. And then you go out and you raise another round of capital. And you get what you think is the best partner in the world. And they got such a good deal when they came in that it was kind of like, well, we don't really need to do anything else is worse. Everything else is worse. They were just going to sit here. So, you know, we had to go through a lot. And I think the resiliency was a really really important component. The other thing I would say is that trusting your instincts and now in people, on culture, and we've never wavered from those founding principles. We built a preeminent private capital platform from the ground up. And our goal was always to be the partner of choice for our investors, for our private equity clients. And of course, equally as important for each other. And I think we did that. And there's a lot to be proud of in many respects, given everything we've been through and the ups and the downs and the in-betweens. And I said this in my 20-year letter to investors, it's true. I mean, the history of Churchill really is the history of private credit, right? It's the fits, the starts, the ups, the downs, the GFC, COVID, you know, I mean, who would have thought when COVID hit? And we thought we were going out for a week. We were out for what? Two years. I didn't even water my plant. To an half year. We left the office thinking we'll be back next week. And who would have thought that during that time, we would raise the most capital we've raised in our history in the COVID of all times. When we couldn't travel, right, would turn out to be the most definitive period of our last time here. It was an accelerator. It was totally a accelerator. And believe me you, and we both understand this one, it wasn't our first thought when the markets tanked in March of 2020. And we were all trying to figure out what this meant. But again, resiliency was the key thing, right? We were like, okay, everybody else has to deal with being out of the office. Let's see if we can use this time to lean in. And not only do we survive COVID, but we came out of it stronger and better for it. So here we are today, 20 years later. Yeah. 63 billion dollars. Five strategies. Incredibly deep and successful track records, 4500 investors. Last year we did what 16 billion in total, nearly investment, nearly 400. deals, top three most active direct lender. Sherry's got all the rankings in a book. We can, depending on who counts them, we're in top three and all of them. We raised last year 13 billion of new capital, but it's quite a journey we've been on, and obviously we kept it all off with our latest fund. There's a lot to be proud of. A lot to be proud of. Been quite a journey. It has been Ken Cancel, President and CEO of Churchill Asset Management. Thank you so much for finally joining us on Private Capital. Thank you. It was great.