In a recent fireside chat, Steven Ruby, Co-Head of Originated Debt at Audax Private Debt, delved into the intricacies of identifying uniqueness and niche in private credit. The discussion covered a range of topics crucial for understanding the evolving landscape of private credit markets, particularly focusing on the core U.S. middle market.

Key Discussion Points and Timelines:

Background and Audax Overview: Ruby shared his journey from Toronto to the U.S., highlighting his roles at DLJ Investment Partners and Greenwich Street Capital Partners before joining Audax in 2003. Audax, founded in 1999 by former Bain Capital Partners, focuses on private equity and private credit, emphasizing U.S. middle-market companies.

Evolution of Private Credit : Ruby discussed the evolution of financing products since 2000, noting the shift from junior and senior debt to more sophisticated structures like unitranche direct lending, which began in 2016.

Asset Management and Investment Strategy : Audax manages over $20 billion in assets under management (AUM) in private credit, with a team of over 60 investment professionals.

Identifying and Managing Investment Opportunities : Ruby emphasized the importance of building long-term relationships with over 280 private equity sponsors to maintain a robust deal flow, which allows Audax to be selective, closing less than 2% of seen deals.

Challenges and Red Flags in Deal Screening : Key red flags include industry volatility, customer or supplier concentration, and fluctuating earnings. Audax avoids sectors like retail and energy due to their cyclical nature.

Future Strategy and Relationship Importance : Looking ahead, Ruby stressed the ongoing importance of relationships with both private equity sponsors and investors. He anticipates a continued focus on these relationships to navigate future market conditions effectively.

Market Trends and Investor Concerns : The discussion touched on the transformation of the industry into a “fundraising machine,” with Ruby acknowledging the necessity of continuous capital raising in private credit. He also highlighted the current investor concerns regarding the impact of sustained high interest rates on legacy portfolios.

Key timestamps:

00:09: Introduction to ION Influencers’ Fireside Chat
00:37: Ruby’s Background and Role at Audax
01:21: Introduction to Audax
01:52: Focus on Private Credit at Audax
02:53: AUM and Team at Audax
03:36: Evolution of Private Credit as an Asset Class
05:49: Competitive Advantage and Business Model
07:38: Defining the Middle Market
08:53: Differentiation and Deal Flow
10:20: Saying No to Opportunities
12:54: Approach to Private Equity Sponsors
15:03: Coverage Model for Private Equity Sponsors
16:22: Importance of Relationships
20:50: The Changing Landscape of Private Equity
23:11: Evolution of Investor Relations
24:37: Impact of Interest Rates
25:38: Investor Concerns
26:36: Aspirations for the Future