Ares vs. Golub Direct Lending

td2013:

You are a client to banks when you are on the buy side. Private equity / debt or asset management, you shouldn't do any external presentations like pitchbooks because you have the capital so all you need to do is present internally to get investment approval. When you make pitchbooks on the buyside you're making slides look banking-style for an uncertain transaction.

I think your understanding of the scaled players in the private debt space is a bit flawed. Direct lenders are not “clients to banks.” Not sure where you are hearing that... It really couldn’t be anymore opposite. They are more so a direct competitor to a bank as a separate financing alternative than traditional bank financing. So you are in no way a “client” to a bank as a direct lender. Sometimes, as others have mentioned, these scaled players might participate in a broadly syndicated process whereby the lead role is a bank, and you as the direct lender, will be taking down a portion of the overall underwrite that the BANK led. That is not very common, especially among the scaled players like Ares / Oaktree etc, but it still happens.

Most of the time as a direct lender you are competing against traditional financing arrangements from a bank and are actively trying to lure business away from that channel. This is obviously a huge area as leveraged lending guidelines, public syndication processes, public rating agency processes, etc are a huge burden on management teams / financial sponsors for many obvious reasons. So again you are not a client to a bank... Lets just make sure that’s clear. Ares in particular has each senior member covering a pool of private equity firms whom are its clients. Almost all of the direct lending business comes from its sponsor relationships, although recently they have been building the non-sponsored platform.

The scaled players like Ares are unique in that they can self-originate, so actively trying to pursue business is part of the job although again, this is mostly done at the senior level. Almost all investment opportunities come in through the sponsor relationships so they very much so employ a bottoms-up model. There is no “pitching” as you call it. Sponsors will come to Ares, and a handful of other direct lenders and/or banks to gauge their view on a specific financing opportunity. After several rounds, the sponsor chooses one (or multiple) financing parties to execute the deal. So not sure who is telling you people “pitch” there at the junior level. Nobody is making pitchbooks at a firm with 110 billion in capital. Deals flow into Ares constantly, every day. Again, bottoms-up investment research.

Most direct lenders cannot self-originate like Ares so the level of responsibility and depth in a process is limited at those shops in comparison to Ares. Id say Ares digs deeper than most other credit shops because of this, in that they are committing and holding control positions in most cases, versus the majority of small direct lenders who just simply buy a small % of a debt product that some other firm created. Also bear in mind Ares can invest throughout the cap structure, allowing them to be more creative in structuring which most other credit shops simply cannot do. If you are underwriting, structuring, negotiating etc which is what you will do at a firm who is Leading a particular financing, then you will be doing much more work on many fronts. The only guys in the space who are not massive banks that can do this are the ones we have been mentioning with scale - Ares, Oaktree, GSO, etc. These firms are very different than any other direct lender in the market today, so OP make sure you understand that. Happy to discuss further offline if needed.