Ted Koenig, Chairman and CEO of Monroe Capital, joined Keith Black, Managing Director of RIA Channel, at the CAIS Summit to discuss the advantages of private credit lending in the lower middle market.
Monroe Capital specializes in providing private credit to lower middle-market companies that have less than $35 million in EBITDA. Each year, Monroe Capital lends to 110-130 of the middle market’s 250,000 companies. Monroe Capital has been a private credit manager for over 20 years, initially competing with only five other fund managers. Koenig believes that lending to lower middle market companies can provide “alpha” than lending to larger companies. Today, there are a much larger number of private credit managers, many of whom Koenig states are riding the “beta” wave. While competition is increasing in the private credit space, few lenders have chosen to lend to the lower middle market.
Monroe Capital’s initial clients were institutional investors, including pension funds and insurance companies. The firm saw a need from RIAs and high net worth individuals for lower investment minimums compared to the industry standard of $3-5 million minimums for institutional vehicles, 1099 tax forms, immediate capital investments, and quarterly liquidity potential. In 2019, Monroe Capital expanded its investor base to high-net-worth individuals and RIAs within its Wealth Management Solutions channel.
While private credit loans charge borrowers interest at floating rates, Koenig notes that the spread to Treasuries or corporate credit has been attractive across interest rate cycles.
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