Head of Private Debt, Senior Portfolio Manager
Ron Kantowitz
Invesco Direct Lending
Invesco Private Credit is one of the leading financiers to global private equity with over $25 billion of capital outstanding to over 200 sponsors. For decades, our veteran Direct Lending team has served as a reliable, long-term partner to premiere private equity sponsors seeking middle market debt solutions.
$25B+
across loans outstanding to private equity firms across platform
200+
private equity firms with existing loans across platform
20+
years of team experience together in middle market lending
Why partner with Invesco?
Our direct lending team has decades of experience in sourcing, underwriting, and executing senior secured loans in the core middle market. We are a trusted partner to leading deal sponsors seeking capital and investors targeting compelling sources of risk-adjusted return.
- Experience: Seasoned team with 20+ years of experience together providing over $10 billion in loans issued to middle market
- Partnership approach: History of building long-term, multi-decade partnerships with private equity firms and investors
- Integrated platform: Fully integrated, private-side senior loan platform with the ability to support portfolio companies as capital needs transition to syndicated markets
- Efficient diligence process: One of the largest sector-based senior loans research teams with 20+ credit analysts with 2000+ credit library resulting in informed and efficient diligence
- Institutional support: Extensive resources and infrastructure of a large, diversified global asset manager with $1.5 trillion of client capital and one of the largest senior loan managers with $40+ billion of AUM
Transcript
Speaker 1 (00:17):
Invesco's Private Credit platform today manages in excess of $43 billion in assets across three key strategies, direct lending, broadly syndicated loans and distress credit. I think one of the key strengths of the platform is that everybody within private credit sits on the private side of the information wall. And so as a consequence of that, there's tremendous sharing in terms of our information and access to deal knowledge. So there's tremendous synergy in terms of our sector knowledge that we can share across our various strategies.
Speaker 1 (00:46):
And then specific to direct lending, we focus in a segment of direct lending we refer to as the core middle market, which I would define as businesses enterprise values less than $750 million in size. The reason we choose to focus on that segment is because historically it's been the most consistent segment within direct lending. And I think equally important when you compare it with other opportunities within direct lending, it offers some of the most attractive yields while at the same time, some of the strongest creditor protections.
Speaker 1 (01:16):
Sure, so direct lending traditionally means providing capital to companies or businesses without the benefit of an intermediary. You're directly lending to a company. I think what's important is this is not a new market or new asset class, but what has changed and evolved is the constituency of the providers of that capital. Historically direct lending was the purview of the banking market. But after the Great Recession, we saw changes to the regulatory dynamics and leveraged lending guidelines which made it more difficult for banks to be able to support these companies. And as a consequence, we saw the emergence of what we first called shadow banking. Then we called non-banking and today we refer to as direct lending.
Speaker 1 (01:53):
And I think what's important is this is a very large market. In the US today there are over 200,000 companies that fit the definition of middle market. They employ over 50 million individuals and they represent over a third of the private side of US GDP. This is a significant market. There's tremendous demand for capital. And the emergence of direct lending has really evolved as a means to supply and meet that demand.
Speaker 1 (02:20):
These are interesting times. We have geopolitical dynamics going on. We have rising interest rate, we have increased volatility in the market. All of those components suggest increased risk. I think what's so appealing and attractive about direct lending is by its very nature, it is a conservative asset class and it orients towards risk mitigation. As an example, it tends to be a senior secured asset class. So it sits at the top of the capital structure, has all the collateral of the companies that it invests in. It's a floating rate asset class.
Speaker 1 (02:52):
And we know in times of rising interest rates, floating rate loans tend to outperform. It provides a natural hedge for our investors against rising rates. It tends to align with private equity firms. You're investing alongside of some of the smartest private equity investors in the world. They're providing first large capital anywhere up to 50% of the value of these businesses. It puts your investment in a very secure position within the capital structure. And I think lastly, when we look at this asset class relative to the broader equity and debt markets, what we see is it tends to exhibit very low volatility and as a consequence, low correlation with these other asset classes. So as an investor, it offers a natural hedge and diversification against their broader portfolio.
Speaker 1 (03:38):
You know, I think there are two things where you have to have a competitive differentiated approach in direct lending if you want to be successful. Sourcing and diligence, and the way we go to market on the sourcing side is we leverage the scale of Invesco's institutional relationships with private equity firms. Today, we have over $25 billion of capital invested in the portfolio companies of more than 200 private equity firms and that creates significant institutional relationships. And the reason thing that's important is when you talk to our private equity clients, what they'll tell you is they're looking to consolidate their lending relationships down to fewer institutions that can do more for them. So we believe our ability is to be able to support these private equity firms across the size spectrum from small middle market direct lending deals all the way up through multi-billion dollar corporates creates a differential to value proposition for our private equity firms, which drives what we believe to be a significant sourcing advantage.
Speaker 1 (04:32):
The other component is diligence, and we have a very simple philosophy here. We do not believe it's, you can be successful as a direct lender if you're a generalist. And so on our private credit side, we have one of the largest private side sector teams in the market on every deal we do. We bring those sector experts onto the deal team. And if you think about looking at an investment opportunity in healthcare or aerospace or automotive, if you don't have that level of sector expertise, you're either going to take too long to get to the right answer or more than likely you're going to make a mistake. And so our philosophy is by having that dedicated sector expertise on investment we make it allows our diligence to be that much more focused efficient, and that tries better outcomes for our customers.
DISCLOSURE
About Risk
Alternative investment products, including private equity, may involve a higher degree of risk, may engage in leveraging and other speculative investment practices that may increase the risk of investment loss and can be highly illiquid.
Important Information
This video is intended only for Institutional Investors in the US and in Canada, only for accredited investors as defined under National Instrument 45-106. It is not intended for and should not be distributed to, or relied upon, by retail investors.
This video has been prepared solely for informational purposes and is not intended to be an offer to sell or a solicitation of an offer to buy any securities, nor shall any securities be offered or sold to any person in any jurisdiction in which such an offer, solicitation, purchase or sale would be unlawful. This document does not form part of any prospectus or any offering document. The opinions and views expressed herein are for illustrative purposes and are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Information and opinions expressed by ISSM in this video are current as of May 2022 and are subject to change without notice.
Issued in Canada by Invesco Canada Ltd., 120 Bloor Street East, Suite 700, Toronto, Ontario,
M4W 1B7
Issued in the US by Invesco Senior Secured Management, Inc., 225 Liberty St., 12th Floor, New York, NY 10281
NA2242925
Private Credit Direct Lending in the Core Middle Market
Head of Private Debt and Senior Portfolio Manager Ron Kantowitz explains why Direct Lending is an attractive investment opportunity in today’s evolving market landscape.
Time to watch: 5:41 minutes
Transactions
Our veteran direct lending team has served as a reliable partner to leading private equity sponsors providing debt financing to their core middle market portfolio companies across a range of industries.
Invesco Direct Lending - Target Investment Criteria
| Category | Criteria |
|---|---|
| Company size | Middle market companies with EBITDA of $10-$75 million |
| Investment size | Target holds of $20 - $100 million |
| Target Assets | Revolver, First Lien, Delayed Draw Term Loan, Unitranche and Second Lien |
| Geographic Focus | U.S., Canada with capability to invest in Europe |
| Industry Focus | Broad industry coverage mandate |
| Transaction Types | Leveraged Buyouts, Acquisitions, Refinancings, Recapitalizations, Platform Builds |
ESG approach
Invesco Private Credit strives to stay at the forefront of ESG integration in private credit. To best address the challenges of the private nature of our market, our platform has developed a proprietary framework to effectively underwrite ESG considerations. We utilize a proprietary, 16-factor ESG analysis.
$9B+
of ESG mandate assets
As of March 31, 2022
800+
issuers underwritten to proprietary ESG framework
16
factor ESG framework to independently evaluate each company and issuer
Private Credit
Invesco Private Credit is one of the world’s largest and longest-tenured private credit managers. We leverage a consistent, conservative fundamental credit process to pursue opportunities across broadly syndicated loans, direct lending, and distressed debt and special situations.
Other private credit strategies
We leverage a consistent, conservative fundamental credit process and deep sector knowledge to pursue opportunities across broadly syndicated loans, direct lending, and distressed debt and special situations.
Our investment philosophy is grounded in a fundamental bottom-up risk assessment of each asset in which we invest coupled with top-down macro risk positioning tied to broader economic trends and processes.
We believe that inefficient markets can provide attractive risk-adjusted return regardless of economic cycles. Our integrated global credit platform provides a competitive edge in sourcing, diligence, and execution.
Ability to leverage the Invesco Private Credit platform and allocate across private asset classes based on market environment or investor risk/return objectives.
Key information about direct lending
Direct lending is a subset of the broader private credit asset class in which lenders provide loans to private companies. Direct loans are originated and held by the lender rather than broadly syndicated, and they are typically illiquid, senior secured loans with 5- to 7-year maturities and floating coupon rates.
Because of the private nature of the asset class, direct lending comprises a fragmented and relationship-driven opportunity set. Direct lenders can pursue opportunities that large commercial banks can’t due to regulatory limitations and other barriers.
Direct lending funds raise capital from outside investors, source lending opportunities directly from middle market businesses and private equity sponsors, underwrite each lending opportunity, and structure loans to corporate borrowers. Direct lending funds typically charge a management fee and incentive fee, often with a hurdle rate requirement to earn the incentive fee.
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