Episode summary
How Jeff Schwartz Built a $1B Fund by Going “Horizontal”
How I Invest With David Weisburd
· · Hosts: David Weisburd · Guests: Jeff Schwartz
Summary
Jeff Schwartz says Corbel Capital Partners was built around a market gap he saw in the lower middle market: small business owners who wanted capital for acquisitions, buyouts, dividends, or growth, but did not want a traditional private equity sale. He argues that banks retreated from the space and that structured capital can offer owners flexible financing while still giving investors private equity-style support and governance.
He also explains that building the firm proved far more operationally demanding than simply running deals. Corbel now manages over a billion dollars of capital, and Schwartz says he spends as much time managing the business, team, and fundraising process as he does on investments. He describes fundraising as especially difficult for middle-market managers that do not start with a formal institutional platform.
Corbel has tried to grow “horizontally” rather than vertically, raising different strategies around the same lower middle market focus instead of continually scaling fund size. Schwartz says that approach lets the firm use the same relationships across SBIC debt, special situations, private credit, and equity. He sees the special situations market as especially attractive today because post-pandemic maturity pressure and tighter bank lending could create more distressed opportunities in 2025 and 2026.
Key takeaways
- Schwartz says Corbel was founded to fill a gap in structured capital for small businesses that want financing without selling to private equity.
- He says Corbel manages over a billion dollars of capital and the biggest surprise was how much time firm management takes versus dealmaking.
- Schwartz argues that growing horizontally across strategies has let Corbel reuse its lower middle market network without outgrowing its core market.
- He says SBIC leverage can materially boost returns, citing a 2017 fund with $175 million of private capital and $175 million of low-cost debentures.
- Schwartz believes special situations investing is attractive now because pandemic-era lending is maturing and banks remain cautious with small-business leverage.
Notable quotes
“there was really no one providing what we would call structured capital to small businesses”
“We manage over a billion dollars of capital and have 20 plus employees and offices and infrastructure”
“we've grown the firm horizontally rather than vertically”
“The special situations part of the market is really really interesting right now”
How the episode opens
So you launched Corbel in 2014 after years at Aries. What was the aha moment that convinced you to strike on out on your own?
I'd always wanted to do something more entrepreneurial and I'd gotten to a stage in in my career where it was the appropriate time. But in terms of the investment opportunity or the aha moment where there was an opportunity here, I was speaking to a friend of mine who owned a small business and we were comparing notes on what he did and what I did and he made the comment that it would really be interesting to have an investor like you on my cap table or on my board or involved with my company, but I would never sell to a private equity fund. Um, so I thought about small businesses.
I thought about the lower middle market. I knew that traditional banks had largely vacated the space and were lending much more selectively and much more conservatively to small businesses. I knew that private equity firms were certainly buying small businesses, but there was really no one providing what we would call structured capital to small businesses where we could provide capital for an owner of a business to make an acquisition, to buy out a minority shareholder, to take a dividend, and still benefit from private equity style sponsorship and support.
And I thought that void in the market created a real opportunity for me to raise a fund around that strategy and generate off-market riskadjusted returns for my investors.
Obviously, when you were at Aries, you had a lot of infrastructure behind you and a lot of support. What did you underestimate in terms of what you would have to do in order to build your own franchise?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- lower middle market lending
- structured capital
- fundraising challenges
- horizontal vs vertical growth
- sbic leverage
Companies and tickers mentioned
- ARES
- Corbel Capital Partners
- Ares Management
Watch the episode
Watch “How Jeff Schwartz Built a $1B Fund by Going “Horizontal”” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
