Episode summary
$24 Billion Investor on Private Credit, Market Bubbles & Generating Alpha
How I Invest With David Weisburd
· · 48 min · Hosts: David Weisburd · Guests: Theodore L. Koenig
Summary
Theodore L. Koenig argues that private credit grew because banks became too constrained, especially after the financial crisis pushed leveraged lending out of the regulated banking system and into asset managers. He says Monroe Capital saw that shift early by focusing on lower middle-market companies, where large Wall Street firms were less active, and he credits the firm’s long-term growth to staying in that niche rather than chasing every part of the market.
Koenig says private credit is not in a bubble in the way skeptics suggest. In his view, the real risk sits in private equity and in the equity cushion below the debt, while private credit lenders sit senior in the capital stack and are paid first. He also says the asset class is still expanding, with private credit already a $2 trillion market that he expects to reach $5 trillion in five years.
He makes the case that private credit generates alpha in only two ways: earning more than the next lender and losing less than the next lender. He emphasizes that Monroe’s edge comes from disciplined underwriting, a focus on stable returns for institutions, and a growing retail channel that has drawn in high-net-worth investors seeking a 10% to 11% return. Koenig also says the firm’s culture is built around one shared P&L, long-term thinking, and a “pie” mindset rather than competing over slices.
Key takeaways
- Koenig says private credit moved from bank balance sheets to asset managers after the financial crisis because regulation made leveraged lending too costly for banks.
- He expects private credit to grow from $2 trillion to $5 trillion in five years, driven by both institutions and retail investors.
- Koenig says Monroe’s moat is the lower middle market, especially companies with $35 million to $440 million of EBITDA, where Wall Street is less focused.
- He argues the real bubble risk is in private equity equity values, not in senior-secured private credit debt.
- Koenig says Monroe is about 30% high-net-worth retail and 70% institutional today, and he wants that mix to move to 50/50 within 3 to 4 years.
Notable quotes
“One is to make more money than the next guy and the other way is to lose less money than the next guy”
“We love the 354 $440 million EBIDA size companies and below”
“the real risk is in the equity side, private equity market”
How the episode opens
Mono Capital has grown to $24 billion firm deploying $10 billion a year, but when you started in 2001, it was a completely different market. What made you want to enter private credit?
Excellent question. So, my background is accounting and finance and law. I practiced law for about 14 years.
I did M&A and bank financing law mostly for private equity transactions. And what I noticed is that throughout my career, we worked with banks on transactions. Banks were relatively inflexible in terms of their financing because they had regulations.
They had certain ways they had to do deals. The only two non-banks that existed at that time were GE Capital and Heler Financial. And they weren't regulated.
So they could structure deals in all kinds of more creative ways and customize transactions for companies, but they were doing larger deals. There was nobody really doing lower middle market or smaller deals in a non-bank format. So, I thought that as opposed to working 24/7 and building hours as a lawyer, that I could take what I learned as a lawyer, take what I learned representing PE funds and banks and apply that to transactional finance and do it the way GE Capital and Heler Financial were doing it in a way that was more userfriendly for smaller companies, more main street America.
And I started Monroe in 2001 and I managed to recruit three guys that were excellent bankers. One was a credit guy, one was an origination person, one was an underwriter that joined me in this new venture. They were each making $100,000 a year and they had families and they were a little reticent to do it.
But I convinced them that we were going to be successful and this was going to be the new form of finance as the future unfolded.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- private credit growth
- market bubbles
- generating alpha
- post-financial-crisis lending shift
- retail investor inflows
Companies and tickers mentioned
- Monroe Capital
Watch the episode
Watch “$24 Billion Investor on Private Credit, Market Bubbles & Generating Alpha” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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