Ep. 258: Randy Schwimmer on Why Private Credit Is Performing
Mar 7, 2025
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Randy Schwimmer, Vice Chairman of Churchill Asset Management, shares his expertise in private credit and capital markets. He discusses the current macroeconomic landscape's impact on private credit, highlighting trends in service-oriented businesses and the significance of free cash flow. The conversation delves into deal activity, M&A, and LBO complexities, while also addressing how direct lending managers adapt to interest rate fluctuations. Additionally, Schwimmer touches on the transformative role of AI in portfolio management within private equity.
The macroeconomic environment significantly influences private credit, with service-oriented sectors proving more resilient during economic fluctuations.
Direct lending has gained traction as a standalone asset class, allowing institutional investors to enhance deal flow while managing risks effectively.
Deep dives
The Macro Landscape and Private Markets
The current macroeconomic environment critically influences private markets, particularly as interest rates and inflation fluctuate. Sectors focusing on service-oriented businesses, such as logistics and healthcare technology, have been identified as more resilient during economic cycles. For instance, during COVID, commercial landscaping services maintained steady revenue despite general economic downturns, highlighting their essential nature. The podcast discusses the importance of understanding both macroeconomic headwinds and tailwinds, which help investors assess the viability of various sectors in private credit.
Navigating Deal Flow and Fundraising Challenges
Recent trends indicate a slowdown in global mergers and acquisitions (M&A), affecting both private equity and direct lending industries. As interest rates rise, the ability to finance leveraged buyouts becomes more complicated, leading to increased hesitation among investors. Many limited partners (LPs) are currently seeking returns on past investments before committing new funds, creating pressure on fundraising capabilities. This shift emphasizes the significance of sourcing deals carefully, ensuring that firms prioritize quality over quantity in their investment strategies.
The Competitive Edge of Direct Lending
Direct lending has emerged as an attractive alternative to traditional banking within the middle market, with firms increasingly treating it as a standalone asset class. This space allows institutional investors to leverage their relationships with private equity sponsors for better deal flow while maintaining stringent standards for risk management. The podcast highlights how firms often focus on middle-market businesses with established relationships and expertise, creating a competitive advantage. This model not only fosters resilience in lending practices but also helps in navigating market fluctuations effectively.
Long-term Outlook and Global Perspectives
Emerging trends point to a growing international interest in private credit, with investors from Europe and Asia recognizing its stability and performance across varying economic cycles. The podcast reveals that private capital is increasingly viewed as a necessary component of investment portfolios, especially as public equities exhibit volatility. Additionally, the discussions touch on the potential for private credit to evolve into its own asset class, separate from traditional alternatives, as investors become more sophisticated. This trend underscores a shift in the investment landscape, moving towards more diverse and resilient portfolios.
Randy Schwimmer is Vice Chairman of Churchill, where he oversees the Investor Solutions Group. Previously, he served as Co-Head of Senior Lending, responsible for senior lending origination and capital markets. Randy also serves on the firm’s Executive Committee and Senior Lending Investment Committee. Randy is also the Founder and Publisher of The Lead Left, Churchill’s weekly newsletter reviewing deals and trends in the capital markets. He also produces Private Capital Call, a monthly podcast. Prior to Churchill, Randy held senior roles at BNP Paribas and JP Morgan Chase. In this podcast, we discuss how macro is affecting private credit, what companies make good private credit candidates, deal activity, M&A and LBOs, and much more.