Private Credit

August 16, 2022

In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Director, Publications, EisnerAmper, speaks with Danielle Brown, CEO, Altriarch Capital Management, a Charleston, South Carolina-based private credit manager.  Brown, a well-known name in the industry, who was formerly managing director at Neuberger Berman’s Dyal Capital, shares her outlook for private credit, including the greatest opportunities and challenges, her experience being a woman investment manager in the industry, and how the firm is embracing DEI. 


Transcript

Elana Margulies-Snyderman:Hello, and welcome to the EisnerAmper Podcast Series. I'm your host, Elana Margulies-Snyderman and with me today is Danielle Brown, CEO of Altriarch Capital Management, a Charleston, South Carolina based private credit manager. Prior to taking over Altriarch Capital, Brown, a well-known name in the industry, was managing director at Dyal Capital Neuberger Berman's Division that made minority equity investments in alternative invest managers, which is now part of Blue Owl.

Today, Danielle will share with us her outlook for private credit, including the greatest opportunities and challenges, her experience being a woman investment manager and how the firm is embracing DEI. Hi Danielle, thanks for being with me today.
Danielle Brown:Thanks for having me Elana.

EMS:Danielle, I'd like to start off and hear more about your firm and how you got to where you are today.
DB:Yeah, I think that entire journey might take us a little bit longer than the time we've allotted ourselves on the call but I was asked to take over a CEO role at a small asset manager just in February of 2021. The time, that firm had two small legacy private equity funds and so it had some management fees to give us a foundation to build from and when I was hired, we collectively decided to focus the firm's efforts on private credit. We launched our first account in specialty finance in November, and then hired our second strategy of venture debt team, we hired them in January of 2022, and we've been super fortunate to have a strong market reception to date. We were able to find our anchor investor for the specialty finance line of business in November and then we have secured our anchor investor for the venture debt team in March, and are just finishing finalizing terms for that as we speak.
EMS:Daniel, I really want to applaud you on your amazing success in such a short period of time. So I thought this would be a good opportunity to take a deeper dive into private credit and wanted to hear your outlook for the space.
DB:Thanks. All really comes down to having a great team, surrounding ourselves with great people. We can really build a firm that we'll be proud of. And I think our choice of private credit was deliberate. I, personally, and my partners believe that it's an asset class where alpha is created through skillful negotiations and deal management. A skilled investment team is really instrumental in how you structure debt, how you manage situations that could arise over the life cycle of a fund. And I think that private credit in particular offers us as managers, more flexibility and a lot of opportunity for value creation for our investors than many other strategies.

If that perspective combined with the macroeconomic factors right now in the market that we believe are setting us up for a phenomenal investment period, rising rates will help with positioning relative to banks, meaning our debt being positioned relative to a bank's offering, and the slowdown in equity deployment plus retreating valuations are all slated to be really positive indicators for our strategies.

I guess I'll just say too, that it's also really important for us to differentiate as a manager within the private credit space. This is something that we really look to do through different origination channels, focusing on different borrowers, different loan sizes, whether that's through geography or sector. It's a very exciting asset class for us right now and our outlook for private credit is very positive.
EMS:Danielle, that's really exciting. And I know you just mentioned about the rising rates will be beneficial to your strategy. And what are some of that other opportunities you see in private credit and why?
DB:Well, I think for us, one of the greatest opportunities that we see right now, and we're particularly excited, by the companies that we're seeing in the venture debt space. Which, I have to say, I really prefer calling venture debt growth lending. We're lending to companies in their growth stage of life. So we prefer that nomenclature and we think it's a better fit. So we lend to firms that have an annual recurring revenue of at least $10 million a year. That means they've gone through the technology risk and proof of concept aren't really a concern to us anymore.

And the reason we think that this area is one of the greatest opportunities is venture equity, and I think a lot of people know these numbers, but venture equity firms have put out nearly a trillion dollars in the last several years where venture lending has deployed less than 10% of that similar number. So by our estimates, that's about 6,000 companies that have received financing and will be coming back to the market in the near future, facing a down round, in this current market environment. Facing the down round really makes a lot of management companies and CFOs more receptive to debt than ever before. And we believe that venture debt right now is a really good de-risked means of getting venture exposure with good potential equity upside, starting from a low valuation, all the while getting reliable and attractive yields.
EMS:Danielle, that's a segue about what you said in the current environment. I'd like you address some challenge that you might face looking ahead and why?
DB:There's several that come to mind. But the one that I spend the bulk of my time thinking about right now is there's always in our industry, in our asset management industry, there's always been this mismatch of capital availability and deal quality. Investors tend to pull back on allocations or capital deployment when markets get a little uncertain. And that tends to be the exact time in which asset managers, like Altriarch, see the best deals. So right now the greatest challenge for us is giving the allocations in the door while we see a bevy of really great borrowers looking for money.
EMS:Danielle, I'd like to shift gears a little bit and talk about a topic that is very pertinent right now in our industry. Being a woman asset manager, you're clearly an inspiration and I'd love for you to share more in what you're doing to inspire other women to foray and grow their career as an asset management.
DB:Thanks. I've had a 20 year career in alternative asset management and have been really fortunate with the opportunities that I've been given and the people that I've been able to work with. I've had the good fortune of working with a lot of amazing people over that 20 year career. And I didn't really notice, and I guess I'm not really sure why, but I didn't really notice much difference in the way that I was promoted or handed and assigned opportunities during the first half of my career or so. I think that emerged a little bit later in my career and I think statistically we've seen that to be true for many women with a long tenured career.

I noticed in the last half of my career that I was being encouraged to seek further client development or investor relations roles when I would talk to my bosses and talk about lateral growth or moving up. I had certainly held client development and investor relation roles over the arc of my career and had some success at them, but never really thrived because I didn't love the work. So over the arc of my work experience, the bulk of my career has actually been on manager research, allocation, investments and then operational sides of our industry. And so when I was again, looking to make a change in my career towards the end of 2019 and was suggested to pursue another investor relations type of role, I decided it was time to take a risk and go out on my own.
EMS:And Danielle, clearly you've had luck going out on your own, securing an anchor investor in such a short period of time. So I wanted to ask you a follow-up question, being a woman-owned firm, you've clearly incorporated DEI into the firm's culture, but now it's never been more urgent, so I wanted to hear more about how you and your firm are really pushing DEI?
DB:It's a great question. And it's something that I spend a fair amount of time thinking about. I actually think there's a lot of ways I can answer this question, so maybe we can take in a few directions. Number one, I think, improving DEI metrics and really making a difference at corporations will depend upon, as I stated, all of these amazing people that I got to work. Altriarch wouldn't have had the success we've had to date if I didn't have support from my prior network, from my prior bosses, prior relationships. And so, they're willing to support a diverse and women-owned firm, that's the only thing that makes it work for us, is I have their support of that group.

When it comes to Altriarch directly, I have to admit that I'm a little bit embarrassed because DEI wasn't a founding principle of our firm in the beginning. It has a strong presence for us now, we're currently a team of eight and are very diverse across all functions of the business. And this happened naturally for us. When we were hiring, I didn't necessarily set out to hire in a diverse way, which I know in today's day and age is a horrible thing to admit. But when I stepped back and I looked at the firm, we had happened to be very lucky with the end result. My partners and I were talking about why that occurred and the only thing we really landed on is that we ourselves come from a different pool of candidates and by the nature of who we are, we surround ourselves with a different network of talent.

And this is why I think it's important that diverse people start and lead their own companies. You know, maybe that's an aside for us on another podcast at some point. You know, we talk about who can afford to take the risk of starting their own firm and work without a salary and that alone is an impediment to increasing corporate diversity. But anyways, we, as a leadership group have access to this inherently different network of talent. And I realize maybe I should describe our leadership group. Amongst the five partners at our firm two are women and two are of Indian descent. And then on our operations team, we have a lot of different ethnic backgrounds as well. And so the firm truly is diverse.

So I think we've been very lucky to date and planning for DEI success in moving forward, we've been very cognizant in drafting documents and incorporating things that we will do to continue the diversity that we have here at Altriarch. We're looking at getting involved in some of the fantastic internship programs that are out there, the group SEO runs a great internship program that we'd like to participate in. There's a local group here in Charleston called the Pinckney Foundations, which can also help us source diverse pipeline of kids to come up through our internship program here as well.
EMS:Danielle, we've covered a lot of ground today, so I wanted to see what your future plans are at Altriarch?
DB:We're fortunate to operate two really compelling investment strategies within private credit, and we're going to focus on growing both of those into hopefully multi-billion dollar businesses. I think that will be enough to keep us busy for a while.
EMS:Danielle, I wanted to thank you so much for sharing your perspective with our listeners today. And thank you for listening to the EisnerAmper Podcast Series. Visit eisneramper.com for more information on this and a host of other topics and join us for our next EisnerAmper podcast, when we get down to business.

Transcribed by Rev.com

About Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.


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