Luke Gillam, Partner and Head of Senior Direct Lending at Albacore, shared his insights in a recent ION Influencers Fireside Chat on the resilience of private credit and direct lending as asset classes.

Luke Gillam’s Background

• Current Role: Partner at Albacore Capital, Head of Senior Direct Lending.
• Experience: Over 20 years at Goldman Sachs, leading the credit capital markets team in Europe and chairing global capital committees.
• Focus: Driving the success of Albacore’s first dedicated senior direct lending fund.

Key Topics Discussed

1. Private Credit as a Resilient Asset Class
   • Performance: Private credit, particularly senior direct lending, has outperformed other fixed income asset classes over the past five years.
   • Volatility: Lower volatility compared to liquid leveraged loans and high-yield bonds.
   • Premium: Direct lending typically offers a premium of 150-200 basis points over liquid leveraged loans due to its illiquid nature.
2. Evolution of the Industry
   • Growth Post-GFC: The industry grew significantly after the Global Financial Crisis (GFC) as banks pulled back from leveraged corporate lending.
   • Market Expansion: Initially focused on lower middle market transactions, now includes larger deals, such as the €6.5 billion Adavinto deal in Europe.
3. Investor Appetite and Market Segmentation
   • Focus Areas: Albacore targets middle to upper middle market deals, finding better value and credit quality.
   • Market Dynamics: Smaller market segments offer higher premiums but also higher default rates.
4. Deal Origination and Market Trends
   • Club Transactions: Majority of deals (€50 million and above) are now club transactions, reducing reliance on single lenders.
   • Relationship Building: Importance of maintaining strong relationships with private equity sponsors.
5. Impact of Economic Cycles
   • Recession Preparedness: Emphasis on rigorous downside analysis to prepare for potential macroeconomic weaknesses.
   • Historical Perspective: Insights from past economic shocks, including the dot-com bubble, GFC, and COVID-19.
6. Future Outlook
   • Investment Focus: Balancing new investments with portfolio management.
   • Default Rates: Current trends and future expectations in default rates.
   • Geopolitical Shifts: Potential shift in investor focus from the US to Europe due to macroeconomic stability.
7. Industry Consolidation
   • Trends: Continued consolidation among asset managers, with larger firms growing in the private credit space.
   • Albacore’s Strategy: Scaling up operations while maintaining focus on high-quality investments.
8. Team and Recruitment
   • Talent Acquisition: Recruiting from both sell-side and buy-side to build a strong, dynamic team.
   • Future Plans: Scaling the platform and expanding the team to support growth.

Key timestamps:

00:08 Introduction to the Fireside Chat
02:02 The Case for Private Credit
04:19 Evolution of the Direct Lending Industry
06:09 Investor Appetite and Market Trends
08:39 Origination Strategies in Direct Lending
11:25 Challenges in Maintaining Relationships with Sponsors
13:14 Market Resilience and Economic Shocks
18:04 Shifting Focus: European vs. US Private Credit
20:05 Specialization in Private Credit Strategies
21:16 Future Trends in M&A Activity
22:53 Consolidation Trends Among Asset Managers
24:10 Future Plans and Business Growth
25:39 Recruitment Strategies for Scaling the Team
26:14 Key Skills for Successful Investing