Lending to midsize companies once seemed like the boring side of banking. Not anymore. A decade of ultralow interest rates and stricter bank regulation inspired a generation of financiers to create funds to provide companies with credit that banks no longer offer. In exchange, investors got juicier yields than almost anywhere else— as much as 5.3% more than on junk bonds or leveraged loans, according to a Goldman Sachs analysis in December.
The poster child for this boom in direct lending is Owl Rock Capital Partners LP, a 4-year-old firm founded by three Wall Street veterans: Douglas Ostrover from Blackstone Group, 57; Marc Lipschultz from KKR, 51; and Craig Packer from Goldman Sachs Group, 53. By late 2019, when it sold a 20% stake to Neuberger Berman Group’s Dyal Capital Partners, the company was valued at $2.5 billion. By capitalizing on its founders’ Wall Street connections and zeroing in on one part of the $800 billion private credit market, Owl Rock built up about $16.5 billion in assets under management.
Now the coronavirus pandemic and its economic consequences are set to challenge this model in an unprecedented manner. In February—and again in early March— Bloomberg Markets sat down to talk with Lipschultz, the company’s president, about how this new business model evolved and what he expects to happen if there’s a global recession.
KELSEY BUTLER: Will the current market volatility impact your strategy or what kind of investments you make?
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