Transcript: Ken Kencel



The transcript from this week’s, MiB: Ken Kencel, Churchill Asset Management, is below.

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ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, Ken Kencel of Churchill Asset Management, CEO, Founder, President. This is really a fascinating story. Ken was there at the beginning of the private credit markets when he was working at Drexel. And he’s been at a number of shops including Chase and Carlyle, really few people in the industry have seen the growth of this from a tiny little niche form of credit to a trillion dollar-plus industry that’s become a key part of asset allocation and a key part of the management of foundations, endowments, other large institutional investments. I found this conversation really to be absolutely a master class and totally fascinating, and I think you will as well.

With no further ado, my conversation with Ken Kencel of Churchill Asset Management. Ken Kencel, welcome to Bloomberg.

KEN KENCEL, PRESIDENT & CEO, CHURCHILL ASSET MANAGEMENT: Thanks so much, Barry. Great to be here and I love the format. It’s fantastic.

RITHOLTZ: Oh, well, thanks so much for coming. I’ve very much been looking forward to this conversation. Let’s start out by digging into your career which is really quite fascinating. You start at Drexel in the M&A group, what was that, like? That had to be quite an experience.

KENCEL: It was a fascinating time and an incredible group of people. I will tell you that, you know, in many respects, you look at experiences in your career and think about how they influenced you, and think about organizations and the environment you want to work in. Drexel is an incredibly exciting place to work, young people given tremendous responsibility at, frankly, very young age in their careers. And I got the opportunity to work with some really interesting folks who continue today to be involved in private equity and private credit, and then see them all the time and I’m very proud of that time. It was a great time.

RITHOLTZ: From that era, any particular deals or events that stand out as highlights, or really memorable?

KENCEL: Well, the deal everybody thinks about in that era, and kind of the defining deal was RJR.

RITHOLTZ: The barbarians, I think. Yes, right.

KENCEL: “Barbarians at the Gate” and the financing. What most people don’t realize is that that deal had been hanging around as a potential transaction for a long time, and a lot of firms had looked at it, and it had conversations with the company. And you know, frankly, for us, younger guys, I was an associate or VP back then. I was, you know, one of the younger folks in the crew. It was a bit of a tar baby back then. In other words, you know, the senior folks would go around and say, okay, we’re going to do yet another analysis on RJR. We’re going to look at a buyout and look at the pricing, look at the structure.

So, you know, it got to the point where, it was exciting at first, as a deal. But I would say over time, we were all kind of under our desks when the assignment partner came around looking for somebody to work on it. So, you know, it’s funny how deals turn out to be bellwether deals and known across the world —

RITHOLTZ: Didn’t look like that at that time.

KENCEL: — but it didn’t look like that at that time.


KENCEL: People were running away from working on it. So —

RITHOLTZ: So you ended up at Chase Financial, where you stand up their high yield business. Tell us a little bit about that. How did you get to Chase?


RITHOLTZ: And what was it like back then? They weren’t the giant player they are today.

KENCEL: They weren’t. In fact, that was pre -merger with Manny Hanny and Chemical, and JP Morgan, and et cetera. You know, what’s was interesting, I think all of us were a bit surprised when Drexel left the corporate landscape and all of us were out trying to figure out, okay, well, where do we go? And what was fascinating about Drexel and kind of the diaspora, if you will, of that era was that we all basically went out looking to take that experience, particularly in high yield and kind of buyouts and financing, and do it at either banks or other investment banks.

So, I ended up at Chase in the early ‘90s and they, interestingly enough, had just formed a Section 20. They really weren’t in the investment banking business, and they looked at the opportunity there and said, gee, we should really have a high yield business and a financing business. And so Tom LaBrecque and Art Ryan hired me to start their high yield business, and it was a great place to work. Unfortunately, you know, they went through a series of about a dozen mergers —


KENCEL: — in a period of probably five years.

RITHOLTZ: I love the joke about the person who says they’re sitting at their same desk, but, like, every three months, they get a new set of business cards.

KENCEL: Right.

RITHOLTZ: And they just keep a stack of all their old ones. First, we were, what was it, Manny Hanny.


RITHOLTZ: There was just a run of acquisitions until they’re the behemoth. They pretty much are the Mack Daddy in the space today, aren’t they?

KENCEL: That’s exactly right. And back then, you know, again, it was a very interesting place to be because they had lots of capital and they had lots of clients. But, historically, they’ve not been in that business. So we started the high yield business there in the early ‘90s. And frankly, it was going quite well until, you know, the first of what turned out to be many mergers.

And then I left there and joined a number of my colleagues from Drexel and launched a business that as it turns out, was pretty much a carbon copy of the business we have today. And it was backed by the largest bank in France, it was called Indosuez Capital. In many respects, it was a lot like Drexel in the sense that super talented people, incredibly flexible, you know, in terms of giving young people opportunity, et cetera. It was a relatively small group. But we became one of the most active lenders and financing sources and investors to mid-sized U.S. companies, and had lots of very talented folks that we work with. So one thing leads to another and that led us to getting back with a lot of my old colleagues from Drexel and you know, built quite an interesting business there for almost 10 years,

RITHOLTZ: So many questions, so Indosuez Capital sounds so exotic, French bank, what was their focus?


RITHOLTZ: Why are they investing in mid-market U.S. private —

KENCEL: Right.

RITHOLTZ: — credit? It seems unusual.

KENCEL: Right. So the first thing to think about is that when we first met with them, I’ll never forget meeting with the gentleman who was, you know, heading up the bank in United States, and they essentially had virtually no significant business in the U.S. They were lending to aircraft, you know, under aircraft, and had a couple other very small businesses, but they aspired to be a much larger player in the financing markets.

And we brought them a plan that, you know, I think, was very similar to what the banks were doing at the time, which was providing financing to private equity-owned companies, huge area of growth in the economy. PE, at that point, was really just developing in the middle market. You had a lot of the big buyout firms, they were doing the transactions in the ‘80s, in the early ‘90s. But, you know, these large firms were spinning off smaller private equity firms. And they were doing mid-sized deals.


KENCEL: And so, financing and actually investing, co-investing in those deals was a very interesting place to be, and it was an incredibly fast-growing area. In some cases, the big banks weren’t quite as interested in financing those deals. So we created basically a mid-market lending platform that ultimately spun out some of the most talented and capable folks, you know, within the private debt world today. So lots of folks work there that now run very large alternative asset management firms and credit arms of firms., so it was a very, very interesting place.

But we not only did the financing for deals, we actually invested alongside those private equity firms —

RITHOLTZ: Oh, really? That’s interesting.

KENCEL: — as an equity partner, right? So the theory was that’s great that you’re providing a loan, but if you can co-invest with them and get the upside of partnering with some of the most successful private equity funds in the United States, you know, a great way to enhance your returns.

RITHOLTZ: We call that legal insider trading. Hey, I know this private company is about to get a giant line of credit and that’s going to help them go to the next level. Let’s get an equity piece also.

KENCEL: Well, kind of like that. I mean, I would say that what we really did is focus on the private equity firms that really had a great track record. You know, we knew their principles. We knew that they had done, you know, good deals, acquiring attractive and high performing businesses. And so, you know, we looked to finance those deals, but essentially said to those private equity firms, look, we think you can do a great job. We love your investment strategy. We love the industries you invest in. You know, we’d love to co-invest with you, not as a control but as a minority investor, right?


KENCEL: So, if they were acquiring a business, you know, we would often take an equity investment as well. And that model proved to be very, very successful. Now, if you think about the time and place that we were operating, it essentially was the precursor to the current private credit world. You know, in other words, really, we were managed and investing alongside leading private equity funds and managing the bank’s capital, and we actually started raising third-party money back then as well.

RITHOLTZ: That’s really interesting. I want to circle back to something you mentioned, about how that middle market formed. And let’s put this in the framework of the 1990s, the public markets were doing great. A lot of these companies were becoming very large. And I think the traditional sources of financing were chasing the bigger companies.

KENCEL: That’s right.

RITHOLTZ: And suddenly, like a void developed underneath. Is that a fair way to describe that?

KENCEL: That’s exactly right. In fact, as things subsequently played out, what you saw is that wave of bank consolidation that I refer to, ultimately brought banks — I mentioned Chase, for example, started with their Section 20 when we launched their high yield, but then —

RITHOLTZ: Section 20 being?

KENCEL: It’s the investment banking affiliate.

RITHOLTZ: Got you.

KENCEL: Right. So in other words, Chase said, wait a minute, we can be an investment bank. We’re going to form our own investment banking operation. In their case, it was called Chase Securities, it’s now JPMorgan Securities.

RITHOLTZ: Heard of them.

KENCEL: But what was happening is that wave of mergers, you know, the elimination of Glass-Steagall —


KENCEL: — and the ability of banks to consolidate and form their own investment banking and their own securities businesses led banks to effectively was a higher margin business, right?


KENCEL: Rather than, you know, put all their capital in a single loan and hold $200 million, $300 million, $400 million, or $500 million of a loan, they could actually arrange to distribute the loan. And so, what we saw over that period of time was that banks became much more in the moving business, if you will, as opposed to being in the storage business.

RITHOLTZ: That makes a lot of sense.

KENCEL: Right. So, you know, where did that void get filled? It got filled ultimately, initially by, you know, some of these more esoteric businesses like Indosuez Capital. And of course, GE Capital had a lending business very similar. But, over time, it ultimately got filled by private capital managers, direct lenders, firms that were raising institutional capital to invest in private companies. So underserved and beginning really in the ‘90s, but as that underserved dynamic continue to grow, and as the middle market continue to grow, I mean, interestingly, the U.S. middle market is the third largest economy in the world.

RITHOLTZ: That’s an incredible stat.

KENCEL: It’s amazing to think about, right?

RITHOLTZ: Right. That really is an incredible stat. So you’re building out a middle market, private credit bank, and along comes Carlyle and says, hey, we’d like to absorb you. Tell us a little bit about that experience.

KENCEL: So one stop along the way. So subsequent to that business at Indosuez, I launched my own firm in 2006, and this is now further into that bank consolidation dynamic. And we raised about $500 million of private equity. And the thesis was, which turned out to be completely true, is that these banks were going to move away from the business of actually lending money to midsize companies.


KENCEL: It was a huge and growing market. And in fact, asset managers were going to become the giants of that business, including firms like Carlyle and KKR, and others. And so to the extent that we could build a best-in-class private credit direct lending platform, there would be buyers of that business because, again, private equity firms always build things to sell them, right?

And so five years into that growth of our business, we sold the firm to Carlyle in 2011. Carlyle was in the process of going public. So if you think about it, their bankers were saying to them, you know, you’re great in private equity. You’ve got a big real estate platform. By the way, you’re not really in this private credit business, and that’s really going to be a growth area. You should have a platform there. And that’s really what was the genesis for, you know, our sale to Carlyle.


RITHOLTZ: So let’s talk a little bit about the history of your business. You launched your own firm and a couple of years later, along comes Carlyle and says —


RITHOLTZ: — hey, let’s talk about integrating what you do into what we do. How did that come about?

KENCEL: Right.

RITHOLTZ: And what was that like during that period?

KENCEL: Yeah. Sure. Now, what’s was interesting, of course, we were coming out of the GFC at that point and —

RITHOLTZ: Wait. You launched in ’06.

KENCEL: I launched in ’06 and we sold to Carlyle in 2011.

RITHOLTZ: So before we jumped to Carlyle then, let me ask you, private credit, the banks freeze up in ’08-’09.

KENCEL: Right.

RITHOLTZ: How was your business during that period? Was that a target-rich environment, or what was that like?

KENCEL: So, interestingly enough, somewhat different from today, right, because if you think back then, we were one of only a handful of private credit firms. The amount of liquidity or dry powder in our world was much more limited. The banks were essentially out of the business, right? They weren’t lending at that point. So while there was a lot of dry powder in private equity, probably back then, $200 billion or so of liquidity, the private equity firms really did not have a large amount of private debt to finance their deals. There were a handful of us, right?

So you know, we saw some opportunities, but I would say that it’s really only been in the last 10 years where you’ve seen this tremendous growth in private credit. So today, for example, the situation is very different, right? Yes, there’s a lot of liquidity in private equity. But there’s also a lot of liquidity in private credit to be able to finance those transactions. So a very different dynamic than we saw back in 2007, 2008, 2009.

That being said, we stuck to our knitting. We stayed focused on high quality companies. Our track record and performance through the GFC was very, very good. And so, when we came out of the GFC, our private equity owners were starting to think, okay, well, how do we monetize this investment we made? And fortunately for us, there were a number of large scale alternative asset managers, like Carlyle, that were looking to grow in private credit. Carlyle was in the midst of going public at that point. And I’ve known David and Bill, the founders, for almost two decades, and so I approached them about the opportunity of potentially having Churchill become the private credit business within the broader Carlyle Group.

RITHOLTZ: So you approached them. They didn’t come knocking on your door. That’s very fascinating.

KENCEL: I did approach them. And you know, it quickly became clear that the fit was very, very good. It was something that gave them a broader platform in terms of the ability to provide private credit. And frankly, it was an area that all the analysts were saying was going to be an area of tremendous growth. So we did the deal in 2011, and I kind of gave up my baby, if you will. So I went from being a founder and an owner to being more of an employee and a member of the Carlyle. And you know, for several years, we operated as really their direct lending platform.

RITHOLTZ: So what led to you saying it’s time to spin out and be a standalone again?

KENCEL: So a couple of things. You know, one was I found that once you’re a founder and you have a lot more control over your culture and your people and the environment, and really the growth dynamics in your business, that I missed that. You know, to me, my business and really the business that I’ve done throughout my career is really all about the people.

I mean, capital is a commodity, right? So at the end of the day, it’s really about building, developing and growing your people. And so, for me, the ability to go back and really be in control of that dynamic, be where I was, which was a founder and an owner of my own firm was really where my heart was. And so, you know, I went to David and Bill in 2014, and we had kind of served out our three-year term there. And there was an opportunity to do that, and they were incredibly gracious and allowing me to do that.

And you know, for me, I also saw the business changing. And what I was seeing was that the ability to deliver large amounts of capital, to really operate like a bank, right? You know, we saw this transition starting in late ‘90s, early 2000s. But at this point, you were seeing large scale institutions allocate significant dollars to private credit, right? And it became a very well-accepted asset class. Why? Because the banks had been leaving. These mid-sized companies needed financing. And now, it wasn’t a matter of, oh, we’re going to invest $10 million or $20 million or $30 million in a private credit deal. It was we’re going to be the lead lender in a $400 million deal.


KENCEL: And so, what I felt was that there was going to be a tremendous need for a significant capital. And so, joining a firm that was really an asset owner and that could actually invest their own balance sheet alongside third-party investors was going to be a key to being able to grow the business. In the case of, you know, the firm that we ultimately partnered with, interestingly, TIAA had just acquired Nuveen. So not only did they have a balance sheet and were a significant investor in private credit. In fact, TIAA is the second largest investor in private credit in the world.


KENCEL: So we found a good partner. But they also owned an asset management platform, so they had institutional distribution and the ability to raise capital from third parties globally. So you know, I’ve formed a relationship back in 2014, ’15 with Jose Minaya, who is now the CEO of Nuveen and actually still sits on our board today. And I could see his vision for where he wanted to grow this business, and it was completely aligned with mine.

And so, the opportunity to relaunch effectively my firm, with our name, by the way, which is kind of nice, with my partners. And by the way, all of my partners ultimately joined me, all my founding partners joined me, to join as an affiliate of Nuveen. And TIAA committed an initial amount of capital, back then it was $300 million, and don’t lose it. Today, we manage over $23 billion for TIAA, and take very, very seriously our obligation to their members, college professors, university professors, health care workers, over 5 million of them, you know, all across the U.S.

And every time I have one of these conversations invariably, and Barry, it’s probably you, too, you know, well, I’ve got an uncle who’s a college professor —


KENCEL: — or somebody who’s a teacher, and so I’m passionate about education. And so, the ability to invest on behalf of, you know, millions of college and university professors and teachers is something that means a lot to me.

RITHOLTZ: So this raises a really interesting question. When you began, this industry really didn’t exist.

KENCEL: That’s right.

RITHOLTZ: Private credit was —

KENCEL: That’s right.

RITHOLTZ: –you know, a twinkle in a few people’s eyes.


RITHOLTZ: And now, we’ve watched it grow and become institutionalized, and you go from Carlyle to Nuveen and TIAA. What is the state of private credit looked like today? And how different is it from what we saw in the 2000s, the ‘90s, even the early days in the ‘80s?

KENCEL: Well, the first answer is it’s very different in a number of ways, but I think fundamentally better. And let me explain what I mean by that. So if you went back to, you know, kind of the bank era, right, when banks were doing these mid-market loans, what you’d see is that whether it’s Chase Manhattan, or Chemical Bank, or JPMorgan, or whoever, what you would see is these banks would make a loan, and they would hold virtually all that loan on their balance sheet. So you would see pretty high concentrations of, you know, $100 million, $200 million, $300 million, all essentially sitting on a single balance sheet of the bank.

So obviously, risk managers, you know, and CROs were very focused on how do we manage that risk and diversify that credit risk that they were taking on in mid-market companies. What’s fascinating about the model today, and really coming out of the GFC, is if you look at the best private credit managers today, the first thing you see is that we compete for capital based on performance, right? So we attract investors based on delivering solid risk-adjusted returns as opposed to banks that are basically looking to make loans to drive short-term earnings.

So I would say that the transition away from banks has helped diversify the investments in private credits. What do I mean by that? If you look at our funds today, we manage about $46 billion in capital at Churchill today, and we’ll talk about the acquisition that Nuveen did of Arcmont in a few minutes. But, at Churchill, historical business, we manage that capital on behalf of over 1,500 investors globally.

So when you think about the individual exposure to a specific name, in our funds, it represents less than one half of 1 percent of the portfolio. So those investors are getting incredibly diversified, and I would argue lower risk profile than if, for example, one bank makes a $400 million loan and holds the whole thing on their balance sheet.


KENCEL: So in that sense, it’s very performance-driven. Meaning, the best managers attract capital, which was not the case in the banking world. Two, the investments are held over a broad range of institutional investors and highly diversified because of the nature of how we fund our loans. They’re not held by one fund. In our case, they’re held by separately managed accounts, commingled funds, publicly registered vehicles, et cetera. So healthier in the sense that the risk is more diversified.

And then, thirdly, I would say in the case of our business, we have a number of real advantages over our competitors and over banks that give us, I think, an ability to deliver better outcomes for our investors, including the fact that TIAA, as our largest investor, invest directly alongside every investor in our firm.

RITHOLTZ: And I want to put a little meat on the bones when you were talking about the growth of the space. Private debt AUM has grown to $1.3 trillion. That’s a 5x increase since the financial crisis and a doubling since 2015.

KENCEL: That’s right.

RITHOLTZ: So this is not like a little niche anymore. This is a trillion-dollar space.

KENCEL: Absolutely. And you know, it’s funny, when I was on the road in the early days, you know, talk about even post GFC, you’d meet with large scale institutions and you talk about senior secured loans, private lending, covenants, reasonable leverage, et cetera, et cetera. And they would look at you and say, well, that’s all fantastic and sounds really interesting, and the risk-adjusted returns look really good. But we don’t really know where to put it. Right? In other words, it’s not private equity and it’s not traditional fixed income, you know, like investment grade fixed income.


KENCEL: And so it sat in this kind of middle ground, and you know, it took a while before larger institutions really accepted that this could be a very attractive place to earn very good risk-adjusted returns. And early days, it was, you know, probably 10 percent, maybe 20 percent of investors that we would meet with, that would really be allocating to private credit.

Today, 90 percent of the investors we meet with, have not only allocated to private credit, but they have a plan to increase their allocation to private credit. So what I’ve been able to, you know, have kind of a front row seat to during my career was this tremendous transition from the mid-market lending business being really a bank-led business, and then kind of had an interim stop at GE Capital, where it was more —


KENCEL: — kind of a finance company, if you will, and then really accelerating over the last, you know, 15, 20 years of being really an asset management business, in some respects, no different than private equity. Right? In fact, some private equity firms have private credit arms that manage credit as well, exactly.

RITHOLTZ: And you mentioned the acquisition of Arcmont Asset Management by Nuveen. Tell us about the thinking behind that. Does that get integrated to Churchill, or is that a co-investor? How does that work?

KENCEL: Yeah. Sure. So you know, over the course of our time, as part of Nuveen, it’s been a fantastic partnership. We’ve had great support from, first, Roger Ferguson, the former CEO, and now, Thasunda Brown Duckett, who’s current CEO of TIAA, and then also the CIO as well. But what we saw was that we were really not truly a global private credit manager. We were 100 percent focused on managing investments in the U.S.

About three or four years into our business, TIAA actually moved all of the management of their private equity, fund commitments, all the management of their private equity co-investments. And so, we went from being just a private debt investor to being a private capital investor. And so, that was a big event for us because all of those private equity relationships, as a limited partner, are fantastic drivers of knowledge and relationships and deal flow to finance those deals with those private equity firms.

So, today, we manage over 270 private equity fund commitments and co-invest alongside those investors. Interestingly enough, that business, our business today is virtually identical to the business, but much bigger than the business we had at Indosuez over 20 years ago. Meaning, you’re doing lending. You’re co-investing in the equity. But what we didn’t have, when we really stepped back and looked at it, we didn’t have Europe. Right. We didn’t have an ability to do what we do in the context of a European market, that was in many respects, developing very rapidly and probably five years behind the U.S.

RITHOLTZ: Does Arcmont solve that problem for you?

KENCEL: They do. And in fact, when we started looking at potential partners, and I mean partners in a very real sense, we looked at pretty much all the direct lenders in Europe. And what we saw in Arcmont was, in many respects, the carbon copy of us in United States, entrepreneurial, had been part of a big firm at one point, had spun out from that firm. We’re very much focused on high quality, conservative credits, you know, primarily private equity financed and owned businesses. So, you know, a mirror image, in many respects, of what we were doing in the U.S. middle market, they were doing in the mid and upper middle market in Europe.

And because Europe has been roughly 5 to 10 years behind the U.S. in terms of that bank transition that I described, it was an ability to participate in essentially the same transition that’s been going on, the consolidation. Of course, we just saw another consolidation of Credit Suisse into UBS. So Europe is going through a very similar bank, you know, retrenchment as it relates to direct lending. Arcmont, one of the early adopters in Europe, they actually launched their firm back in 2010, 2011. So we saw an opportunity to really partner with a leader in the same business as us.

And so what we did really is take Churchill, which today is the top 3 lender in the U.S. middle market, we do over $11 billion of investment per year in almost 400 companies. And we saw with Arcmont, an ability to essentially take that model and partner with a very same market-leading business in Europe, and we formed a holding company called Nuveen Private Capital, that basically is a $67 billion parent company, that myself and the CEO of Arcmont co-head.

And so we’ve taken the market-leading business in the U.S., the market leading business in Europe. And now, collectively, we now have a global private credit manager that can provide financing to cross-border transactions, can deliver a global solution to our investors. Right. We have an investor that says, you know, I like Europe, I like the U.S., can you give me a U.S- European global private capital solution? And, obviously, now, we can do that.


RITHOLTZ: Let’s talk a little bit about 2022, which for a lot of people in the capital markets was a difficult and not exactly a pleasant year. You guys had a huge year. You invested $11 billion, that’s a record, 375 transactions. You raised another $11 billion in capital, despite the economic environment. Tell us a little bit about what made everything click in 2022?

KENCEL: Yeah. Well, I think that, you know, 2022, in many respects, and I would say COVID, in general, certainly the last three years of COVID have really been a watershed for our firm. And I think a lot of it has to do with investors recognizing that how we invest, and the advantages we have, and the ability to deliver attractive risk-adjusted returns because of our scale, our differentiated private equity relationships, and the fact that we’ve been doing this a long time, really all came together in COVID.

So it’s not just 2022, I would say it’s basically been through —

RITHOLTZ: The past three years.

KENCEL: –, yeah, the past three years. And what it set the stage for was investors really looking carefully at private credit managers and saying, gee, you know, there’s been this rush to private credit. We need to really look deeper at performance and track record. It’s all well and good when everything is going up —


KENCEL: — and the market environment is good, and you know, credit is flowing. But when things get more difficult, and certainly they did for everyone during COVID, how do they manage to grow the business and how is their portfolio performing in essentially an economy that was basically frozen? And I think that what our investors saw is that, number one, our portfolio held up incredibly well. We actually did not have a full scale default during COVID —

RITHOLTZ: That’s impressive.

KENCEL: — you know, which is pretty interesting, right?


KENCEL: When you think about, now, why is that? Well, we financed high quality businesses. We don’t invest in oil and gas and restaurants and retail and more volatile businesses. We stay away from all that.


KENCEL: Right? So we focus on quality. We focus on market leaders. We partner with private equity firms that themselves have a great track record, that focus on the kinds of industries where we do invest, which is technology, in health care, in business services, and market leaders in those areas, distribution, logistics. So we go through COVID, we perform extremely well, the portfolio does well, and investors take note of that. And TIAA takes note of that as our largest investor. And so their allocations, and investors’ interest in us, as a private credit manager grow exponentially.

And so you see our capital raising. You mentioned $11 billion last year. It was about $12 billion a year before that, and a significant number prior to that. So during COVID, we have raised well over $30 billion from TIAA and other investors. And so performance, which is kind of what I said earlier about, you know, performance attracts capital, right?


KENCEL: So the lesser performers, I think, struggled during COVID. And I’d say 2022 is the combination of that, because not only did you have COVID, but now you’ve got rising interest rates. And so if you’re financing marginal businesses, suddenly the cost of their loan — the good news is our interest rate goes up. All of our loans are floating rate.

RITHOLTZ: Oh, really?

KENCEL: So ours is —

RITHOLTZ: It sounds it’s going to — that — then let me —

KENCEL: No, no. Good news for us.

RITHOLTZ: So let me jump in and ask this, so prior to 2022, we’re effectively at zero.

KENCEL: That’s right. So how does the increase —

KENCEL: My loans were yielding 6 to 7 percent.

RITHOLTZ: And then what happens when rates go up to 4, four and a half percent?

KENCEL: So our loans today are yielding 11 to 12 percent. So the very same loan that we did a year ago 6 to 7 percent is now yielding for our investors 11 to 12 percent.

RITHOLTZ: So is it LIBOR plus whatever —

KENCEL: That’s right.

RITHOLTZ: — the substitute for LIBOR rate these days?

KENCEL: That’s exactly right. That’s right. SOFR, right? So what we saw was that not only did base rates go up about 450 basis points, maybe more today, right?


KENCEL: Spreads widened. And so that very same loan, a 6 to 7 percent loan today is yielding and our portfolio reflects that our yield now is, you know, 11 percent plus, so better returns for our investors. Now, conversely, you got to look at the companies and say, can they handle, you know, 11 percent interest, right?

Well, because we were a very conservative lender and because we were going into transactions with very reasonable leverage, in fact, our average equity in our transactions has been running about 55, 60 percent equity, right? So well capitalized, conservative structures, covenants. And so the rise in rates has been beneficial to our investors, but it has not caused broad-based issues in our portfolio.

So we’re sitting in a great place, track record, performance, portfolio doing well, lots of liquidity, we continue to raise capital, and investors, institutions see that and as a result gravitate toward the better quality manager. So, today, our yields on our funds are, you know, at the highest levels they’ve ever been in our history. Our portfolio remains in very solid shape. We have a very, very small number of names, even, you know, in our kind of watch list category.

And we’re seeing, interestingly enough, and this is, I think, a bit of a surprise, that the more challenged businesses are actually not coming to market today, right? If you got a company, and they’re struggling under their interest burden, or they’re struggling as a result of inability to pass on price increases or problems with dealing with the rise in rates or the consumer, they’re probably not going to be businesses that are being sold today. So the businesses that we are seeing and are coming to market, are higher quality.

And so, overall, you know, I would argue that the current environment for us is really a golden age for our ability to lend to higher quality businesses, by the way, with lower leverage, right? Because you can’t lever it, you can’t lend it six times leverage today when the rates are 11 percent versus 6, right?


KENCEL: So, now, leverage is lower. Covenants are more in favor of lenders like ourselves. And I think, frankly, what we’re seeing play out today in the banking industry will only enhance that dynamic, right?

RITHOLTZ: So let’s talk a little bit about the types of businesses you’re lending to. You said no restaurants, no retail, no oil and gas.

KENCEL: Right.

RITHOLTZ: So anything that’s either very volatile or very specific. Like, a good restaurant is a great business, but as an industry, it’s a razor-thin margin, difficult business with high turnover. What sort of businesses do you like? Where do you focus?

KENCEL: Sure. So we like market-leading businesses, so we like businesses that are in their niche a, you know, one or two player in terms of their business. We like businesses that are really what I would call traditional side, middle market companies. So what does that really mean? You know, we don’t like the micro companies, companies with $3 million, $4 million a year in cash flow. Frankly, we saw in the GFC, those businesses were much more heavily impacted, right?

So we want businesses that are typically, you know, $50 million to $100 million in cash flow, maybe as small as $25 million, but significant companies, market leaders in industries, and with demonstrated track records of strong historical growth. So what do we mean by that? So software as a service business, right? So, for example, a business that provides software to banks or to manufacturing companies, where the software is actually embedded in the business, right? Highly unlikely to switch providers.

RITHOLTZ: Subscription model. Right.

KENCEL: Subscription model. Correct. By the way, not revenue-based, cash flow-based. In other words, we’re not lending to kind of pie in the sky venture capital businesses. We’re financing real companies that are the lifeblood of the U.S. economy. Health care, we’re major financing provider to health care businesses, right? We finance, as an example, orthopedic practice, build up a large scale practice that is providing health care services to individuals and is a leading practice in the New York area. We finance that business.

We finance, as you mentioned, software firm called Diligent. We have been a financing partner of them for years. So, you know, they are used to keep information secure for boards and endowments and other, you know, public and private investment boards, optical scanning, secure information, ability to update in a regular basis. You have a board meeting. You want to update the materials five minutes before the meeting. You download that into their site. And so they are the leader in that space.

So market leaders, recurring revenue, recurring cash flow, information services, software, health care, distribution, logistics, business services, but away from businesses that are very volatile, right? Because volatility brings all sorts of challenges; liquidity issues, issues with respect to wiping out underlying equity value, or businesses that, frankly, we could be completely right on the credit, but wrong on the commodity, right?


KENCEL: Oil goes up, oil and gas businesses do well. It goes down, it takes everybody down, right? So we like businesses where we can do our homework, we can finance strong management teams, backed by leading private equity firms. And that’s where we’ve been for our history.

RITHOLTZ: So let’s talk about those management teams. Once you make either a credit or an equity, or both investment into a company, how closely do you stay involved with the management team once the deal, you know, once the ink is dried? Do you stay involved, or is it arm’s length at that point?

KENCEL: Very involved and I think that is, in many respects, a byproduct of the private equity business today, which has changed dramatically. So you know, when you think about, Barry, 20, 25 years ago, private equity firms were buying businesses, putting up 10 percent equity, buying companies for 6, 7, 8 times cash flow, and really looking to cut costs and flip those businesses a few years later. That’s not the business today.

What we see in private equity today is really private investment firms buying and growing businesses, creating value through growth, through acquiring smaller players. I look at a company like Diligent. When we first financed that business, it was doing $20 million a year in cash flow. It’s doing, you know, $200-plus million in cash flow today.


KENCEL: So the model today is a growth model. And with that growth, comes a much closer relationship with the lender. So in most of our deals today, the private equity firm that’s buying the business is already talking to us about the next acquisition, the next opportunity, the next geographic expansion. So what they’re bringing to the table really is equity and looking for us to be a full-scale partner of theirs, providing that financing. And so, the model, if you will, isn’t just, oh, we lend money to these guys and we walk away and we hope they don’t breach a covenant.

The model today is no, no, no, we’re buying off on the strategy of growth. How can we be an important and very strategic partner of that private investment firm as they grow the business? And I’ll give you an example. At the time of our financing, our average company is about $40 million to $50 million in cash flow. Yet our portfolio today, you know, obviously, several years on from when we finance the original deal, our portfolio today is approaching $70 million in average cash flow of a business so —

RITHOLTZ: There’s a nice growth there.

KENCEL: — significant growth in the underlying portfolio companies because those private equity firm see their role as really driving that growth, and our role obviously is to be a partner for them.

RITHOLTZ: So on the one end of the spectrum, a bank makes a loan and they hope it doesn’t default. On the other end of the spectrum, private equity companies accumulate a portfolio of separate companies that they’re running.

KENCEL: Right.

RITHOLTZ: They have thousands of employees. You seem to straddle the two of them. You have a foot in each camp. You’re making loans, you’re providing equity investments, but you’re not accumulating portfolio companies the way PE firms do.

KENCEL: Well, interestingly, so here’s the angle and the difference between us and virtually any of our peers. If you look at most of our peers in private credit, certainly the large ones, they all have their own dedicated private equity arm, right? So if you look at the publicly-traded asset managers, they have private credit, but then they also have a control private equity arm that actually does deals, right? So in some respects, you could argue competing against themselves a little bit, right? I mean, they’re buying companies, but then they’re financing, in large part, private equity firms that are competing to buy those very same companies, right. Not always, but occasionally.

In our case, we don’t have a control private equity business, right? Our private equity business is partner-oriented. And it starts with the fact that we have investments in over 270 mid-market private equity funds, right? So what does that do for us? It gives us tremendous insight into the performance, right? And so, we do all that research. We understand their focus. We obviously see what industries they invest in. We see their IRRs, the returns they generate. We invest with the best. And then, we look to do other things with them, right.

So we’re a limited partner. We may co invest in the equity in some of those deals. But equally as important, we now understand the firm. We have an ongoing relationship. We sit on the advisory board today of 200 U.S. private equity firms, on their advisory board.

RITHOLTZ: So let’s drill into that a little bit. When you say you’re a limited partner, I think of LPs as, oh, here’s a Carlyle fund 27.

KENCEL: Right.

RITHOLTZ: I give you X dollars. I’m an LP. What you’re describing sounds like a much tighter relationship, where you’re co-investing in a specific project —

KENCEL: That’s right.

RITHOLTZ: — not just handing off dollars to a fund.

KENCEL: That’s exactly right. We have a separate team that does that, right? So they are managing our investments in private equity firms and co-investing in those deals. And part of their goal is to assist the lending side and understanding who’s doing it the best, what industries are they doing it, and ultimately making sure that we’re connected on the lending side with how we can finance their deal.

RITHOLTZ: I was about to say that sounds like it’s really good for deal flow.

KENCEL: It’s really good for deal flow. And in fact, what we’re seeing in the current environment is that those 270 private equity funds, where we’re a limited partner and sit on their advisory boards, are increasingly consolidating their lending relationships, right? Because they’re saying, you know what, we want to go to partners that when we bring a deal to them, we know they’re going to be there, right? And if you’ve financed 20, 30, 40, 50 deals with that firm over the past 20 years, as we have, we’ve become, in many respects, the go-to partner of many, many of these private equity firms now.

And it’s a huge advantage, right? Because if you think about it, if you’re a private equity fund and you’re going to try to buy a transaction, you’re competing to buy a business, right? And you need financing, you need committed financing. Are you going to go to a firm that has done 30 deals with you over the last 20 years, and you know is going to be there, or are you going to try a new guy, right? You’re going to go where you’ve a relationship and you’ve got a history.

RITHOLTZ: So let’s talk about that because I have a limited amount of experience with a couple of different firms doing this sort of stuff. And one of the things I found fascinating, and I won’t mention any names, but household names that everybody knows, and one of the deals that we did, I just came away thinking every interaction with these people has been fantastic. Everybody at every level is a rock star. Hey, we’re looking for a buyer. We’re looking for a seller. Everybody comes together with the same objective in mind —


RITHOLTZ: — and it happens and I’m like, wow, that was really a delight to deal with. I have to think when you have these long-term relationships, it’s personal. There’s a ton of trust. It’s not every step along the way, all right, let’s bring on the team of lawyers to fight over commas. It’s —

KENCEL: Right.

RITHOLTZ: — we know who you are, you know who you are —

KENCEL: Right.

RITHOLTZ: — let’s make this happen.

KENCEL: Well, if you think about it, if we’ve financed 30 deals, as we have with many leading private equity firms, we start out on the 5-yard line, right?


KENCEL: In other words, we’ve done 30 documents with them, right? I mean —

RITHOLTZ: You know what it’s going to look like.

KENCEL: — we don’t need to recreate the docs, right? So we’ve got personal chemistry and history. We’ve got a course of dealing where we both know, kind of we start with, okay, we just did your last deal, let’s start with that document, right? So all of a sudden, we’re at the 95-yard line, right? So a lot ability to move much more quickly.

Third, there’s a level of trust. So when we say to that private investment firm, we’re good, you know, we’re issuing a commitment letter, we’re good, they know we’re good, right? They know that after 20 years of working with us we’re going to be there for them. And, oh, by the way, just one other element, we’re a limited partner in your fund and our private equity team sits on your advisory board. And, oh, by the way, we’ve got a long-term connection with you guys. You know, we’re here for the long run.

RITHOLTZ: It seems very comfortable for everybody involved.

KENCEL: It is. And you know what? That doesn’t mean that we don’t negotiate over terms and we have to, and they do, too, but at the end of the day, there’s a level of respect and trust that we’re going to get there. We like the business. It makes sense. And it’s been a huge driver for growth in our business. You know, I would venture to say that there have been very few direct lending firms like ourselves than in a relatively short period of time. You think about it’s been seven years that we’ve been part of TIAA. It will be eight years. Actually, our anniversary is coming up here.

If you think about how we have grown this business, you know, last year, we were the second most active direct lender in the United States. That’s a relatively short time. When you look at the firms that are around us, many of them have been around for as many as 15 or even 20 years. So in that sense, we’ve grown the business quite significantly. And then I just got asked this question last week, so you know —


KENCEL: — I think this is important.

RITHOLTZ: Let’s hear it.

KENCEL: So I was actually speaking at a conference, the Greenwich Economic Forum last week, where your folks interviewed me, actually. So I had a very nice conversation. But I was asked the question, how does that happen? How do you go from $300 million from TIAA? We had one investor eight years ago. We have nearly 2,000 investors today, including many, many of the largest U.S. pension funds, and sovereign wealth funds, and internationally, investors.

And I said three things. I said, number one, it’s all about your people, and it’s particularly about the first 10 to 20 people you hire. If they are the right people, and obviously technical capability, but also just, culturally, they’re the right people —

RITHOLTZ: For sure.

KENCEL: — they multiply like crazy. Right?

RITHOLTZ: They’re also the people who are going to be running —

KENCEL: They’re going to be running and hiring.

RITHOLTZ: — the other positions. That’s right. Yeah.

KENCEL: And they’re going to be hiring people. So next thing you know, you go from 10 to 15, 20 people. Suddenly, you’ve got 50 people.


KENCEL: We were at 50 professionals when we went into COVID. We’re 150 today.


KENCEL: We were managing $6 billion when we hit COVID. We’re managing $46 billion today.

RITHOLTZ: That’s a big, big step up.

KENCEL: People, so number one, it’s all about the people. And I’m so proud of the team and the culture we’ve built. I mean, we literally just had our off-site two weeks ago. And you know, I was practically crying. I couldn’t believe what a great team we’ve put together.

Secondly, the partners you have. You know, if you look at TIAA and Nuveen, they’ve been unbelievable partners. Nuveen is raising money for us. TIAA is investing their own capital and, obviously, their members’ capital. They’ve been incredible unwavering supporters. As I’ve mentioned, we’ve had this $23 billion today for TIAA —


KENCEL: — and their participants. But, also, Nuveen has helped raise capital and we wouldn’t be here without them. And then, Jose, obviously, as the CEO, has really been an incredible supporter. And then I would say at the end of the day, it’s also about recognizing that this is never easy. I mean, you know this, Barry.


KENCEL: It looks so easy now, right?

RITHOLTZ: As a matter of fact, yeah.

KENCEL: I tell people stories, you know, like, oh, it looks so easy. Tom Brady, you know —

RITHOLTZ: It was inevitable, right?

KENCEL: It was inevitable. I mean, Tom Brady was drafted in the fifth round, and you know, he was sitting on the bench in New England, and how does this happen, you know?


KENCEL: And I tell my kids this all the time, you have to be willing to pay the price, and tenacity and the willingness to just keep — you know, if I told you how many times, not just me, but all of us who are really leaders in this space, got turned down raising money. I mean, no, thank you very much. Come back later. No, thank you very much. Interesting. Come see us a year from now. So it’s a willingness to be incredibly tenacious and really not give up. You know, I know that sounds kind of cliché-like, but —

RITHOLTZ: But it’s clichéd for a reason.

KENCEL: But it’s —

RITHOLTZ: It’s the truth.

KENCEL: You know what, it’s really the truth. And you know, on the people front, we’ve been very focused on really building a diverse workforce. So, today, you know, nearly half our people are women or ethnic minorities because it’s good business. You want diversity of thought. You want diversity of backgrounds. You want diversity of ideas, right? I need somebody around to tell me when I’m being a knucklehead, right?

And sometimes, you know, you can make wrong decisions, but it’s a lot harder to make a bad decision. And there’s a lot more of a defense mechanism if you surround yourself with people who have diverse ideas and diversity of thought, and can say to you, you know what, I’ve actually been in that situation, this is probably not the right decision. So building a very diverse team, listening to them, and ultimately being willing to change your mind when sometimes you don’t have all the answers and you need to rely on folks that, you know, can really bring value. So I’m very humbled by that and it’s been a great run.

RITHOLTZ: So let’s talk about the experience you’ve had in the industry, working with lots and lots of different companies, some not so successful, some incredibly successful. When you look at the landscape out there, what’s the difference between the rock star firms that are killing it, and also the runs who just seem to be bogged down in bureaucracy and can’t get out of their own way?

KENCEL: Yeah. No. And I think it’s a great question. And you know, obviously, I’ve had a front row seat to lots of different institutions, and certainly my own as well. And I think in the final analysis, you know, I mentioned people, but it’s even more than that in a very important way. It’s ultimately about leadership, right? If the leadership of an organization empowers their people, puts their people in a position to succeed and understands that at the end of the day, you know, their job is not to micromanage people, their job is to set their people free, and make sure that they’re, in a word, kind of bulldozing all the barriers away.


KENCEL: Right? That’s my job at the end of the day. And you approach it with a sense of humility and certainly a lot of passion. But at the end of the day, as I mentioned earlier, having hired what I view are the best team in the industry, you now have to empower the best team in the industry, and you have to mentor the best team in the industry. And I look across the organization, it’s all about, at the end of the day, providing that leadership and support.

And so the best organizations, and I certainly try to do my best to emulate this, are really all about leadership that is, in many respects, a servant leader and that’s what I believe.

RITHOLTZ: Servant leader.

KENCEL: Servant leader, I believe my job is to serve my people and to make sure that they are able to do their absolute best at their job, not to create barriers or not to micromanage them, but to empower them and to knock those barriers down, and to put them in a position where they can be successful.

RITHOLTZ: You are not the first CEO who has said that to me. I’ve heard similar things from other folks, and these are all very successful companies. So I assume there’s something to that.

KENCEL: Well, you know, in many respects, it gets back to my background, which is quite unique and I think —

RITHOLTZ: So let’s talk about that. What makes your background so unique?

KENCEL: Well, it’s probably the most unique background of anyone you’ve interviewed in a while.

RITHOLTZ: There’s one other —


RITHOLTZ: — person who has a similar background. But tell us.

KENCEL: So I was born in Buffalo, New York. I was left, ultimately, for adoption when I was born, but I was basically left at the hospital. I was, by the way, unclear whether I was going to make it. So I was put on —

RITHOLTZ: Oh, really?

KENCEL: I was put on a life support, in an incubator and lots of other stuff. Anyway, long story short, I did, obviously, I’m here. But I was adopted by a couple that, you know, luck would have it, both my father and mother died when I was quite young. And so, my mother’s brother, my uncle raised his hand and said, you know, I can do this. You know, I’ll step in for my sister because he’s an only child. You know, I grew up in a pretty ramshackle part of Buffalo called Woodlawn.

And ultimately, my uncle became my guardian. It took him well over a year. He never graduated from high school. He worked in a steel plant. We actually lived across the street from the Bethlehem Steel where he worked. But he changed everything in my life. And what he changed is he had a tremendous amount of humility, and you know, always taught me growing up that it’s not about you, it’s about how you can influence and change other people’s lives. And so, I’ve always had that focus.

And so he sent me to an all-boys Jesuit High School called Canisius. The Jesuits kind of got behind the program and sent me to a Jesuit High School Georgetown University. And in my career, I’ve always tried to dedicate myself to making everyone around me better.

RITHOLTZ: So let’s focus on that because you said something earlier that I let slip by, but I want to address, especially given the growth the firm has seen over the past couple of years. You mentioned the first 10 or 20 hires you make are the most important hires. Tell us why. What happens to those first 20 people as the firm grows to 100, 150 employees?

KENCEL: It’s very interesting, you know, and I interviewed all of them, every single one of them. One of them is here in the studio with us today, Jessica Tannenbaum who heads up our marketing area and communications. And at the end of the day, you see something and you know it when you see it. It’s a level of passion and enthusiasm. Obviously, all the boxes are checked, right? Experience, background, knowledge, understanding of the job, et cetera, but there’s something else, and I would say that something else is an outward-facing dynamic, where they are clearly incredibly passionate about what they do. But also that enthusiasm and passion is infectious and they recruit people just like them.

And suddenly, you know, instead of you have a core group of maybe 10, 15, 20 people, and I’m sure this is probably similar with other firms like this. I mean, if you look at, you know, Bloomberg, I’m sure it was Mike and three guys in a conference room when they got started, right, but it was the right three or the right 10, right? You know, you look at firms in the asset management industry and the story is, in many respects, very similar. So, you know, you want individuals that are outwardly focused, focusing on building a team of incredibly talented people, and understand that it’s really important to act as a mentor and a coach, and ultimately, a cheerleader and a provider of opportunity to really grow in their career, in their jobs.

And what’s fascinating about us is we’ve had virtually no turnover over the last several years, all through COVID. And I think that, you know, that’s a mark of an organization that has tremendous stability. And you know, I walk around all the time, and I’m talking to everyone. Literally, I think my people get sick of me walking around because I’m literally walking around, but I think it’s really important to let them know you care, and that, you know, they feel that and then they thrive on that passion.

RITHOLTZ: So I’ve had a number of CEOs, I’ve either had them tell me this on the show or I’ve read it elsewhere, that have all said hiring is not only the most important part of our job, it’s the single most difficult thing we do.


RITHOLTZ: Do you agree with that?

KENCEL: 100 percent.

RITHOLTZ: What makes it so challenging, and how can we do it well or better?

KENCEL: I think that, first of all, absolutely, it’s the most important part of your job, but it’s also the hardest, right? Because you have a half an hour or 45 minutes, and you’re trying to assess whether this person is really going to fit well in the organization. Sometimes they self-select out, by the way.


KENCEL: Right? Now, we’ll stay in the process, it becomes clear that it’s not a good fit, but that’s fine.

RITHOLTZ: But those are the easy ones.

KENCEL: Those are the easy ones. Okay. The harder ones are where, you know, look, people gear up for an interview. You see one side of a person during an interview and sometimes that’s not the side you get.


KENCEL: And so, it’s important in a couple of ways. One, we typically have an individual that we hire, interviewed by at least a dozen people, sometimes more.


KENCEL: Because we want to get a look at them in all different facets, in all different environments.

RITHOLTZ: Are you quantifying them? Is there a checklist, or is it very subjective and I think this person is a good fit or not?

KENCEL: You know, in many respects, I wouldn’t call it subjective, but I would say we have folks that do lots of interviews, and I would say there are certain people in our organization who do more than others because they’re really good at it, and so we keep going back to them. But I would say that at the end of the day, it’s very important not only to get a broad-based consensus around a person, but also to do the background checks. It’s mind-blowing to me, how many firms hire, and in some cases, very senior people, and just think, well, this person is well known, we’re going to hire them. And if they had made one or two phone calls —


KENCEL: — they would find out pretty quickly that, actually, that individual is a bit of a disaster in their prior jobs. So not only do we make this effort with relatively junior people, but we do sometimes hire more senior, we actually redouble the effort when we’re talking about senior person because one of the things you learn having been doing this for 25-plus years is you can’t hide from your reputation. You know, once you’ve been doing this that long —


KENCEL: — people know who you are and what you’re about. And so we want to make sure that we understand that when we make a hire to senior level. But, absolutely, about the people, absolutely important to vet them, incredibly hard to do. And by having lots of folks involved in the process, particularly ones that are good at it, and spending a lot of time doing follow-up and background checks, you get a pretty good picture of that person and those are the people we want.

RITHOLTZ: Really interesting stuff. Let me throw you a curveball question.


RITHOLTZ: You play guitar in a band called Suburban Chaos. Come on. First of all, what sort of music do you play, and how often do you guys gig?

KENCEL: Yeah. We gig a lot. Well, first of all, let me just say this. I’ve been playing guitar since I was 6-years-old, 7-years-old. And you know, if you’ve been playing guitar that long, all of us guitar players harbor the dream of being a rock star.

RITHOLTZ: Rhythm or leader? Are you shredding or what are you doing?

KENCEL: I’m a rhythm guitar player and a singer —


KENCEL: — in my band, which I’ve had now for about 10 years. And it actually came about, interestingly enough, because full credit to my wife, she actually happens to be a competitive ballroom dancer.


KENCEL: So my wife would go off to competitions, and you could see the passion she had for really, you know, being a great dancer, and she’s been a dancer for as long as I’ve been a guitar player.


KENCEL: So I watch her, you know, starting to really get into this ballroom dance thing, and I realized I better get with by game here. So I need to have something to do, too, while my wife is traveling all over, you know, these dance competitions. And by the way, she was a U.S. ballroom dance champion for many years as well.


KENCEL: So she’s really good at that. So anyway, so I figured, okay, I got to have my gig, right? So we formed the band about 10 years ago and I like to say that, you know, our repertoire is, let’s say, vintage.

RITHOLTZ: Well, listen, we’re not that far apart on age.


RITHOLTZ: So I assume it’s vintage. But the question is, is it Creedence and John Fogerty? Is it Allman Brothers? What sort of stuff do you play?

KENCEL: Right. So I would characterize our music style as yacht rock meets ‘70s disco. So —

RITHOLTZ: That’s an eclectic result.


RITHOLTZ: When I think of yacht rock, I think as much as I love Steely Dan —

KENCEL: Eagles, Steely Dan.



RITHOLTZ: Which are really both, you know, spectacular well-written music —


RITHOLTZ: — and especially with Steely Dan, not easy to play —

KENCEL: Right.

RITHOLTZ: — or at least not easy to play well —


RITHOLTZ: — depending on the song. And on the disco side —

KENCEL: Dance music, so Michael Jackson.


KENCEL: Patti LaBelle, you know what —

RITHOLTZ: So you can be any bar mitzvah bands in the Northeast.

KENCEL: Exactly.

RITHOLTZ: And you show up and get everybody before the Viennese table, everybody gets up and can move.

KENCEL: Well, look, it’s all about entertaining people. It’s all about playing music that uplifts them. It’s all about playing music they want to dance to. And you know what, you know, you may have seen the same thing, I’ve certainly seen it. Our vintage music has had a bit of a resurgence, right?


KENCEL: I mean, you know, I hear songs that I listened to when I was a kid and I’m like, wait a second, that song is 40-years-old and it’s still playing.

RITHOLTZ: You got satellite music, you go to XM and a lot of stations that aren’t like a decade station.

KENCEL: Right.

RITHOLTZ: But like the blend —


RITHOLTZ: — where is this coming from? The ‘80s and ‘70s.

KENCEL: That’s exactly right. The blend. So —

RITHOLTZ: And then the other thing is when you look at the streaming services, new acts aren’t breaking into streaming. It’s all older stuff that has already has been established. So last band question, just give me your three favorite cover songs you play and that will allow me to know exactly who you are.

KENCEL: Yeah. Okay. Well it will show you a cross-section of what we do.

RITHOLTZ: Okay. Hit me.

KENCEL: So I would say we do a lot of, you know, as you say ‘70s rock, but we also do Sade, for example. We play Smooth Operator.

RITHOLTZ: Smooth Operator. Okay. I know where you’re going with that. Right.

KENCEL: Yeah. So we play Smooth Operator which is great. We do —

RITHOLTZ: You’re not doing the vocals to Smooth Operator, I assume.

KENCEL: No. We have a female singer —

RITHOLTZ: I would hope. Right.

KENCEL: — who’s fantastic. You know, we do more of a rock song called All Right Now by Free.

RITHOLTZ: Of course, that was giant.

KENCEL: Right. You know, Paul Rodgers, All Right Now.

RITHOLTZ: That was right. Former Bad Company. That was a giant song.

KENCEL: And we do a song that is a little bit less known by a guy named Paul Carrack when he was with a band called Ace, called So Long, or excuse me, How Long, how long has this been going on? Yeah.

RITHOLTZ: Oh, sure. That was the Spencer’s Gift soundtrack type of thing —

KENCEL: Exactly.

RITHOLTZ: — back when.

KENCEL: Exactly. So it’s —

RITHOLTZ: I think we’re almost the same exact —


RITHOLTZ: — age, at least, musically.

KENCEL: Yeah. So, you know, we play all over New York and Connecticut, and we’ve played as far as Newport, Rhode Island and New Jersey. But, you know, one thing about a band that’s very interesting, Barry, is that unlike a company like ours, where there is clear, you know, you’re the boss, or she’s the boss —


KENCEL: — or whoever.

RITHOLTZ: It’s a different dynamic.

KENCEL: Oh, it’s a democracy. And by the way, you know, I have to put all of my CEO tendencies, leave them at the door, right?


KENCEL: So suddenly, you know, our band is named Suburban Chaos, and in many respects, it can be chaos, right? Everybody wants to play their own songs. Everybody wants to do this, and no, this is first, et cetera. You know, it’s a democratic process, let’s put it that way, as opposed to a company. But it’s a lot of fun. You know, during COVID, when obviously all the music was turned off, but we had something like 40 or 50 gigs teed up when we went off for COVID. So we play a lot.

RITHOLTZ: Some people were doing remote Zoom gigs during the lockdown.

KENCEL: Absolutely. But, you know, I think you have to have a passion. And I think in my case, you know, music is my happy place.

RITHOLTZ: I get it.

KENCEL: And you know, everybody needs to have a place they can go. And you know, my happy place is Michael Jackson, or whoever, so —

RITHOLTZ: I totally get it. So I only have you for a few more minutes, let me jump to my speed round, my favorite questions, starting with what has been keeping you entertained? What are you watching on Netflix or Amazon Prime?

KENCEL: So I watched a movie that really, you know, given I’ve spoken about my background, and more recently actually found my birth family.

RITHOLTZ: Oh, really?

KENCEL: It’s just, you know, kind of interesting, and turns out that I grew up thinking I was an only child, and it turns out I have nine siblings.

RITHOLTZ: Get out.

KENCEL: Nine siblings. And by the way, they’ve been fantastic and incredibly excited and supportive, and most of them are still back in Buffalo, New York.

RITHOLTZ: How did you find them? Because I’ve heard from people who do 23andMe, all the sudden —


RITHOLTZ: — these local relatives pop up, that they had no idea about.

KENCEL: Ancestry. So I found my family and ancestry. And I was watching a movie called Three Identical Strangers.


KENCEL: And obviously, a lot of those dynamics, you know, really hit home to me, you know, as I watched three brothers who’ve been separated at birth. You know, I have three brothers as well. And you know, it was very interesting to see. And of course, the big question in that movie is, is it nature —


KENCEL: — or is it nurture? And the conclusion, initially, they all thought that it was nature, as you recall.

RITHOLTZ: Oh, we’ll find out.

KENCEL: But then he does the same thing.


KENCEL: Actually, then you find out that it really was nurture, and it really was how you were raised, not, you know, you were born, you’re three brothers and you do everything the same together, and you’re identical. Remember, early on in that movie, they were all talking about, oh, this person does this and we all do the same thing. And, oh, we —

RITHOLTZ: There’s no doubt, there are all these crazy parallels. And then when you start to take peel off that first layer, suddenly —

KENCEL: It’s all about how you were raised, and it’s all about, you know, were you raised in an environment of love and happiness and positivity when you can do this, or were you raised in a very tough environment. And so, you know, that movie was incredibly moving to me because I watched the thesis unfold. And so that’s an example, you know, of one of the things I watched currently.

RITHOLTZ: So let’s talk about mentors. You’ve had a really fascinating career working with a lot of really —


RITHOLTZ: — interesting people who helped shape your career.

KENCEL: So I met David Rubenstein very, very early on, actually. Even before my Drexel days, I was a lawyer for a few years, and David was as well. I actually met him when he was a lawyer and I was a lawyer.

RITHOLTZ: Guilty as well.

KENCEL: Yeah. It was kind of a funny story. I was a new associate at a law firm and I was directed to report to him. And as it turns out, he really didn’t need anyone to help him, so I never really got a chance to work for him, but I met him then. We ended up at the business that I mentioned, Indosuez. We ended up being one of their largest limited partners and financed many, many deals for not just David, but Glenn Youngkin, who was an associate back then, and Pete Clare and others.

And so, I’ve known David for, you know, over 25 years. Obviously, we sold our firm to Carlyle. And I would say of all the folks that I know in our business, really, truly just an incredible person and, frankly, brilliant in terms of how he built Carlyle into a global private equity firm.

RITHOLTZ: Powerhouse.

KENCEL: And of course, as you know, being here at Bloomberg —


KENCEL: — you know, how he has transitioned incredibly to be one of the most interesting media personalities and interviewers, and you know, we need to get him on your show. I mean, he’s —

RITHOLTZ: I think we were scheduled when his first book came out, and then the pandemic lockdown happened. It got postponed. What I find fascinating about him is the more people are running around with their hair on fire, the more he is just calm and the voice of reason.


RITHOLTZ: I love that sort of contrarianism that, you know, when you could see clearly when chaos erupts, that’s a really valuable skill, and he seems to have that in spades. He really is full up with that.

KENCEL: He is. And you know, I’ve gotten obviously continue to know him well. And I will say that, you know, the other thing that I would say about his time is if you look at his leadership of Carlyle and really building that firm, and you look across the folks that are both there now and our alumni, you can see what I refer to in terms of the people.

I mean, if you look at the first 20 or so folks that were at Carlyle, you know, many of them were still there at the firm 15, 20 years later. And I think that speaks to that same dynamic I referred to, you know, building a real culture. And you know, that’s something I admire tremendously and I certainly feel that he’s a good example of someone who’s done that, and transitions so seamlessly into being an author —

RITHOLTZ: Effortlessly.

KENCEL: — and an investor and ultimately a media personality. So he’s somebody I admire very much.

RITHOLTZ: So let’s talk about some books. What are your favorites? What are you reading right now?

KENCEL: So I listen to books. You know, I’m kind of at the point now where I’m a little bit lazy. But, you know, you go in Audible and just you just stop —


KENCEL: — and then you keep going. So I’m listening to a book right now that I think is absolutely fascinating. I would certainly recommend it. It’s called “The Splendid and the Vile.”

RITHOLTZ: Eric Larson?

KENCEL: Erik Larson. And it’s all about England, in Churchill, in advance of World War II and really leading up through World War II. And what’s fascinating about it is, I guess, you know, maybe I never really fully realized how totally unprepared England was for World War II, let alone United States, and how vulnerable they were in those early days, and how easy it would have been for Germany, which had basically conquered the entire continent. I’m at the point now where, you know, they’ve conquered France.

RITHOLTZ: I won’t spoil the ending for you.

KENCEL: But it’s fantastic and it’s a great book.

RITHOLTZ: Everything he’s ever written is deep, fascinating, deeply researched. He’s a fabulous writer.

KENCEL: He is. And it’s a super colorful book because you really feel like you’re in the shoes of Churchill as he’s kind of navigating what is, you know, potentially could have been the end of the free world —


KENCEL: — before we know it, right? So, it’s a great read. I won’t spoil, you know, the dynamics of it, but it’s terrific.

RITHOLTZ: Let’s get to our last two questions, starting with what sort of advice would you give to a recent college grad interested in a career in private credit, private equity, finance in general?

KENCEL: Yeah. So, you know, I think in this age of instant success, if you will, people become media personalities overnight. They become TikTok stars in a week. I would say the advice I would give to young people is that make sure that you understand going in that, you know, it’s all about the people you work with, the people you learn from.

And this is both personal and professional, surround yourself with people that love you, people that want you to be successful. If you surround yourself with people that have negativity and negative thoughts, you’ll have negative thoughts, right? But if you surround yourself with people that you admire and respect, and truly want you to be successful, and that you can learn from and grow from, that’s an incredibly important dynamic.

By the way, those friendships and relationships last a lifetime. I’ve got folks that I was in the bullpen with at Drexel back in the mid ‘80s, that I’m still great friends with and still learn from and talk to all the time. So, you know, surrounding yourself with those people creates lifelong relationships, and often come in very handy in the business world, as I’m sure you’ve seen in your career.


KENCEL: The other thing I would say is I would remind them something that I think is a little bit hard, I think, for a young person to understand, thinking, oh, my gosh, you know, I went for my first interview and I got rejected. You will be rejected. You will fail. The mark of the most successful people I know, and this includes athletes, like Tom Brady who, by the way, you know, was drafted in the fifth round and I’m sure thought of his career was quasi-over at that point, sitting on the bench in New England. But what you realize is it’s all about having the tenacity and the willingness to pay the price to be really good at what you do.

So you will fail. Do not let failure stop you in any way, shape, or form. Recognize, you learn from failure and it’s the failures that ultimately inspire the successes. When I think about my career, it was absolutely the times when it didn’t work out for whatever reason that, you know, you analyze, you determine, okay, what was it that made it not work out and how I fixed that. And I think in many respects, where we are today as a firm is a great example of that, because we tacked several times along the way with our firm. And now, we’re in a phenomenal position with great partners and great people. So learning from and not letting failure deter you is really important.

RITHOLTZ: And our final question, what do you know about the world of private credit and investing today you wish you knew 40 years or so ago when you were first getting started?

KENCEL: You know, I think that when I was, like all of us, when you’re young in the business, you’re convinced that it’s all about showing everyone how smart you are and running the fastest models. I can remember the days at Drexel, we were all in the bullpen. They used to call it the model room and everybody would go in there, and we would all compete for who had the most technologically advanced financial models and it was all about the numbers.


KENCEL: And I think that, you know, there’s certainly an element of our business that is about the numbers. But you know, 30 years ago, I was a young kid thinking, okay, well, it’s all about the numbers, and whoever is the fastest modeler wins, whoever is the smartest wins. But what becomes very clear is it’s all about the people, not the numbers. And it’s all about building relationships and working with people that ultimately make you better.

And I think, you know, I certainly know that today and I certainly figured that out along the way. But I think understanding that, yes, the technical side of the business is important. But it’s really ultimately the people side, the relationship side, the ability to surround yourself and to motivate and mentor the best people that create the best organizations. I mean, look at this organization here. I mean, you know, it’s all about that. And I think that, you know, that’s something I’ve learned along the way and I wish I had known that a lot earlier.

RITHOLTZ: Thanks, Ken, for being so generous with your time. We have been speaking with Ken Kencel, Founder, President and CEO of Churchill Asset Management.

If you enjoy this conversation, well, check out any of the previous 492 we’ve done over the past nine years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Sign up for my daily reading list at Follow me on Twitter @ritholtz. Follow all of the Bloomberg podcasts on Twitter @podcast.

I would be remiss if I did not thank the crack team that helps put these conversations together each week. Justin Milner is my audio engineer. Atika Valbrun is my project manager. Sean Russo is my researcher. Paris Wald is my producer.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.





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