In a recent fireside chat, Michael Ewald, Partner and Global Head of Private Credit Group at Bain Capital, shared valuable insights into the private market’s attractiveness and the benefits of specialization in specific sectors. With a career spanning over 25 years at Bain Capital, Ewald oversees a portfolio managing approximately $12 billion in assets under management (AUM), focusing on middle-market direct lending globally. This discussion, hosted by Giovanni Amodeo, covered a range of topics crucial for understanding the current and future landscape of private credit and capital markets.

Key Highlights from the Fireside Chat:

Growth of Private Credit vs. Private Equity: Over the last decade, both private credit and private equity have seen significant growth. However, private credit has become increasingly attractive to new investors, especially in the last five years, growing at a faster percentage rate.

Focus on Middle Market: Bain Capital’s private credit group has maintained its focus on core middle market companies, those with $25 to $75 million of EBITDA, due to their attractive and differential qualities compared to smaller and larger companies.

Shift Towards Senior Debt: Initially focusing on junior capital, Bain Capital’s private credit group has shifted towards a heavier emphasis on senior debt, although maintaining capabilities in both asset classes remains crucial.

Sponsor-Backed Companies: The private credit portfolio consists predominantly of sponsor-backed companies, with about 95% on the senior side and 60% on the junior side, highlighting the importance of working with sponsors who view lenders as partners rather than merely capital providers.

Industry Specialization: While Bain Capital’s private credit group is open to deal flow across various sectors, there is a strong focus on high-tech, software, healthcare, and financial services, which collectively have made up about 50% of the middle market M&A space in recent years. Additionally, the group has developed expertise in aerospace, defense, transportation, distribution, and logistics.

Deal Flow and Team Structure: Annually, the team sees about 700 deals globally, closing on a high single-digit percentage of those. The team, comprising 36 dedicated members, operates without a split between originators and underwriters, ensuring a single point of contact throughout the deal process.

Future Trends in Private Credit: Looking ahead, Ewald anticipates a continued interest in junior security structures, such as PIK (Payment-In-Kind) or preferred equity tranches, especially given the current high base rate environment which affects the affordability of debt.

Market Dynamics and Expansion: Ewald expressed optimism about doubling Bain Capital’s private credit AUM in the next five years without compromising market segment focus. This growth is expected to come from both the U.S. and Europe, with plans to raise an Asian Direct lending fund to tap into opportunities in the Asian region.

This fireside chat provided a comprehensive overview of the private credit market, highlighting the strategic approaches and insights from one of the leading figures in the industry. Michael Ewald’s experience and perspective offer valuable lessons for investors, sponsors, and other stakeholders in the capital markets.

Key timestamps:

00:09: Introduction to ION Influencers’ Fireside Chats
00:42: Role and Background of Mike Ewald at Bain Capital
01:42: Growth and Trajectory of Private Credit and Direct Lending
02:27: Evolution of Business Opportunity and Focus
03:20: Financing and Capital Solutions in Private Credit
04:12: Selection of Sponsors and Partnership Approach
05:46: Industry Specialization and Working with Sponsors
08:37: Workflow and Engagement with Sponsors
11:11: Team Structure and Collaboration within Bain Capital
11:48: Dealing with Challenging Situations and Workouts
13:44: Differentiation and Uniqueness in Sponsor Pitching
15:32: Structural Changes and Product Popularity in Financing
16:25: Change in Senior Debt Levels
17:01: Shift Towards Junior Securities
17:27: Impact of Industry on Loan-to-Value Ratios
18:20: Investment Capital Allocation
18:46: Market Sentiment on Interest Rates
19:48: Expectation of Higher Interest Rates
20:11: Impact of Interest Rates on Deal Volumes
20:42: Attractiveness of Private Credit in Changing Interest Rate Environment
22:23: Future Outlook for Private Credit and Competition with Banks
24:52: Regional Differences in Private Credit Competition
26:52: Partnerships with Banks and Market Coverage
29:06: Recruitment Strategy for Growth
31:00: Aspirations for Bain Credit