European Direct Lender Rankings + Howard Marks on Certainty
European Direct Lender Rankings + Howard Marks on Certainty
Fundraising from Oak Hill, Oaktree, Tiverton Advisors, Caro Investors & Providence Investment Partners
👋 Hey, Nick here. I don’t know if you read this but I’d be extremely grateful if you shared this with your work colleagues. A special welcome to the new subscribers at Configure Partners
If you’re new, this is the 71st edition of my weekly newsletter. Each week I write about private credit insights and fundraising announcements. You can read my previous articles here and subscribe here.
📕Reads of the week
Blackstone increases its pace of investing to a two-year high Link
Yale Law School: The Credit Markets Go Dark Link
Blue Owl: What makes a great GP Link
Oaktree partners with UK-based Lloyds Bank Link
Blue Owl acquires Atalaya Capital for $450 million Link
European Mid Market Debt Roundtable Link
📊European Direct Lender Rankings
Reorg published its European Direct Lender Rankings. Below are three of my favorite insights, but you should also read the full update here.
Top 10 Direct Lenders in H1 24
75% of deals were below €250m per transaction
Average leverage ratio is 5x EBITDA & Margin is +620bps
📝 The Folly of Certainty
These are some of my favorite parts of Howard’s latest memo. I’d highly recommend that you read the memo in full here Link
“Joe Biden is going to win, period,” Jen O’Malley Dillon, Biden’s campaign chair.
When the 2016 presidential election rolled around, there were two things about which almost everyone was certain:
Hillary Clinton would win but
If by some quirk of fate Donald Trump were to win, the stock market would collapse.
And yet, Trump won, and the stock market rose more than 30% over the next 14 months. The response of most forecasters was to tweak their models and promise to do better next time.
Mine was to say, “If that’s not enough to convince you that:
We don’t know what’s going to happen and
We don’t know how the markets will react to what actually does happen, I don’t know what is.”
Today, Ms. O’Malley Dillon would likely soften her position regarding the certainty of a Biden victory, explaining that she was blindsided by the debate result. But that’s the point! We don’t know what’s going to happen. Randomness exists.
Markets
The rare person who in October 2022 correctly predicted that the Fed wouldn’t cut interest rates over the next 20 months was absolutely right . . . and if that prediction kept them out of the market, they’ve missed out on a gain of roughly 50% in the Standard & Poor’s 500 index. The rate-cut optimist, on the other hand, was absolutely wrong about rates but is likely much richer today. So, yes, market behavior is very tough to gauge correctly. But I’m not going to take time here to catalog the errors of market savants.
Over the years, I’ve often cited the wisdom of John Kenneth Galbraith. It’s he who said:
“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”
I find myself using this quote all the time.
When people get rich, others take that to mean they’re smart. And when investors succeed, it’s often assumed their intelligence can lead to similarly good results in other fields. Further, successful investors often come to believe in the strength of their own intellect and opine about fields with no connection to investing.
But investors’ success can be the result of a string of lucky breaks or a propitious environment, rather than any special talents.
A lot has been said about those who express certainty. We all know people we’d describe as “often wrong but never in doubt.” This reminds me of another of my favorite quotes, one that’s attributed (perhaps tenuously) to Mark Twain:
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Intellectual humility is the opposite of intellectual arrogance or conceit. In common parlance, it resembles open-mindedness. Intellectually humble people can have strong beliefs, but recognize their fallibility and are willing to be proven wrong on matters large and small. (Alison Jones, Duke Today, March 17, 2017)
To put it simply, intellectual humility means saying “I’m not sure,” “The other person could be right,” or even “I might be wrong.” I think it’s an essential trait for investors; I know it is in the people I like to associate with. . . .
No statement that starts with “I don’t know but . . .” or “I could be wrong but . . .” ever got anyone into big trouble. If we admit to uncertainty, we’ll investigate before we invest, double-check our conclusions and proceed with caution. We may sub-optimize when times are good, but we’re unlikely to flame out or melt down. On the other hand, people who are sure may dispense with those things, and if they’re sure and wrong, as the Twain quote suggests, the outcome can be catastrophic. . . .
. . . maybe Voltaire said it best 250 years ago:
Doubt is not a pleasant condition, but certainty is absurd.
There simply is no place for certainty in fields that are influenced by psychological fluctuations, irrationality, and randomness.
Eschewing certainty can keep you out of trouble. I strongly recommend doing so.
💰Fundraising news
Oak Hill Advisors, a New York-based alternative investment manager, announced a $5 billion European Private Credit Strategy. The strategy is a partnership with One Investment Management. More here
Oaktree launched a UK middle-market Direct Lending Facility. The facility is a partnership with UK Bank, Lloyds. It will target UK middle-market sponsor-backed companies with £10-75 million in EBITDA. The Partnership will have a combined single name hold capacity of £175 million per transaction. The groups hope to deploy £1bn over the next three years. More here and here
Tiverton Advisors, a North Carolina-based investment manager, raised more than $870 million for its Agrifinance III fund. Tiverton is one of the largest Ag lenders in the United States, lending to agriculture businesses throughout the Ag value chain. More here, here, and here
Providence Investment Partners, a Dallas-based boutique firm, had a first close of $46 million for its Lower Middle Market fund. The fund will provide junior capital to lower-middle-market companies in Texas and the US Southwest. The fund will lend $5 to $15 million to companies with EBITDA between $2 to $10 million. More here
Caro Investors, a Maryland-based investment manager, launched its inaugural real estate private credit strategy. The fund focuses on commercial real estate including multifamily, industrial and investment-grade retail. TPG NEXT will serve as a significant anchor investor. More here
This newsletter is for education or entertainment purposes only. It should not be taken as investment advice.