In a recent fireside chat hosted by Giovanni Amodeo, Alex Dunev, co-founder and managing partner at Park Cities Asset Management, delved into the intricacies of identifying niche opportunities in private credit within the U.S. market. The discussion, which was a part of the ION Influencers series, provided a comprehensive overview of Park Cities’ strategic approach and its impact on the specialty finance and fintech sectors.

Key Discussion Points:

Background and Foundation of Park Cities: Alex Dunev shared insights into his transition from a 15-year tenure on Wall Street to founding Park Cities with Andy Thomas in early 2018. The motivation stemmed from identifying a significant gap in capital allocation to certain segments of the specialty finance market.

Operational Focus and Strategy: Park Cities specializes in providing asset-based capital across the capital stack, primarily focusing on debt capital in forms like senior and subordinated debt. The firm, based in Dallas, has expanded to about 15 employees and manages approximately $425 million in assets under management (AUM).

Deal Origination and Market Size: Dunev highlighted the proprietary networks as a primary source for deal flow, leveraging deep industry connections. He estimated the addressable market for their niche in private credit to be around $25 billion to $50 billion, focusing on lower middle-market segments.

Investment Approach and Risk Assessment: The discussion covered how Park Cities determines the need for equity or debt in transactions and assesses entrepreneur risk profiles. The firm’s strategy includes lending against assets placed in bankruptcy-remote special purpose vehicles (SPVs), ensuring a secure capital structure.

Macro Factors and Pricing Strategy: Alex Dunev addressed concerns regarding inflation and interest rates, explaining how these macro factors influence their lending terms and conditions. He emphasized the importance of pricing deals correctly to balance risk and maintain competitive returns.

Differentiation and Investor Relations: When questioned about what sets Park Cities apart, Dunev reiterated their ability to structure heavily covenanted deals and charge premium rates due to the scarcity of capital in their targeted market segments. He also discussed transparency and performance as key factors in attracting and retaining investors.

Future Aspirations and Industry Outlook: Looking ahead, Dunev expressed ambitions to solidify Park Cities’ position as a leader in the specialty finance and fintech sectors, aiming to grow into a multi-billion dollar management firm while maintaining a focus on niche opportunities and sustainable risk management.

This insightful conversation not only shed light on Park Cities Management’s strategic operations but also on broader trends and challenges within the private credit sector in the US.

Key timestamps:

00:09: Introduction to ION Influencers’ Fireside Chats
00:33: Background and Foundation of Park Cities Management
01:25: Park Cities Management’s Market Niche and Offerings
02:28: Assets Under Management and Deal Flow
02:51: Deal Sourcing and Addressable Market
03:50: Understanding the Addressable Market and Deal Flow
05:21: Counterpart Familiarity and Education
06:08: Assessing Financing Needs and Risk Profile
09:39: Macroeconomic Factors and Risk Concerns
11:38: Deal Pricing and Competition for Capital
13:28: Differentiation in the Market
14:48: Attractiveness of the Asset Class and Talent
15:46: Brand Identity and Future Perception
16:45: Reasons For and Against Investing in Park Cities
18:38: LPs and Investment Decisions
19:01: Psychology of Investment
21:07: Industry Trends
22:34: Risks in the Private Credit Market
23:32: Aspirations for Park Cities