David Chene and Darren Richman Co-Founders, Co-Portfolio Managers, and Co-Managing Partners of Kennedy Lewis Investment Management, joined Keith Black, Managing Director of RIA Channel, to discuss the difference between sponsor and non-sponsor private credit strategies.
Chene and Richman founded Kennedy Lewis Investment Management in 2017 to bring a differentiated private credit firm to the market and leverage their expertise in sourcing non-sponsor opportunities. The firm has over 500 institutional LP relationships, including four of the largest six US Pension plans, and an affiliate of Goldman Sachs as a strategic partner due to their significant minority interest in the firm.
Kennedy Lewis’ 42-person investment team has a research-led process, focusing on how economic disruptions impact industries and companies in transition, and whether the causes stem from cyclical, secular, or regulatory issues. Kennedy Lewis uses its domain expertise to determine the financing package that best fits each company’s situation. They proactively seek to provide capital to companies and industries where the firm’s economic view projects the best risk and return prospects. The firm seeks to partner with borrowers in a constructive way that leads to repeat business.
Kennedy Lewis’ white paper, Deep Dive Into Non-Sponsor Private Credit, contrasts sponsor and non-sponsor private credit strategies. Sponsor lending is arranged by private equity to acquire companies or fund portfolio company objectives (Leveraged Recap, Growth, etc). The private equity firm selects the company and industry in which to invest, which could result in industry concentration based on private equity trends. The debt financing of these sponsor-backed deals can involve a multitude of lenders in a competitive process, which may lead to weaker covenants, lower rates, and common exposures across funds.
In contrast, non-sponsor lending strategies make loans to companies without a buyout sponsor. Sourcing these loans requires a private credit manager to have an extensive network of relationships in their target industries and the capital backing to provide a compelling and comprehensive solution for the borrower. The loans may have lower leverage, higher credit spreads, and the lack of competition can yield stronger covenants. The proprietary nature of non-sponsor lending leads to greater diversification, as loans to non-sponsor-backed companies are not widely held in other private credit funds and are often made in different industries than sponsored lending.
WEBCAST – Deep Dive Into Non-Sponsor Private Credit
As private credit becomes a larger allocation in many portfolios, it is important to consider different strategies within the asset class. This webcast explores the differences between sponsor-backed and non-sponsor direct lending and how the inclusion of both strategies can provide valuable diversification within private credit.
Kennedy Lewis is a ~$17B+ institutional alternative investment manager founded in 2017 by David Kennedy Chene, former Managing Director at CarVal Investors and Darren Lewis Richman, former Senior Managing Director at Blackstone. Kennedy Lewis specializes in Opportunistic Credit, Core Lending, Homebuilder Finance, and CLO’s. The firm currently works with 500+ institutional LP’s and has recently expanded into the private wealth market.
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