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Tia.vtt

English

{{00:00:07}}
Yeah, so I think there's a couple
of factors that have driven deal

{{00:00:10}}
volume to be more muted in 2024
and quite frankly 2023 as well.

{{00:00:14}}
And I think that was the confluence of
uncertainty both around the economic

{{00:00:19}}
environment and interest rates.

{{00:00:22}}
As well as uncertainty over the election,
and then, of course, there was obviously

{{00:00:26}}
the disconnect between buyer and
seller expectations around valuations.

{{00:00:30}}
But I think as we project into
2025, I think we're more optimistic

{{00:00:35}}
because some of those factors are
showing improvement in terms of

{{00:00:39}}
interest rates are starting to fall.

{{00:00:41}}
You also have the election that's behind
us, and then and then we're hoping once

{{00:00:46}}
that's You know, a couple companies start
trading and valuation becomes a little bit

{{00:00:51}}
more of a consensus view that you'll see
more of a steady return for a deal flow.

{{00:00:56}}
And then on top of that,
you also have market forces.

{{00:00:59}}
You have 2 trillion of private
equity dry powder sitting on the

{{00:01:02}}
sidelines and the clock is ticking.

{{00:01:05}}
And then you also have private
equity firms feeling pressure

{{00:01:08}}
to show distributions to LPs.

{{00:01:10}}
So I think those two market forces
will certainly start to have an

{{00:01:14}}
impact and you'll start to see
more M& A volume in the future.

{{00:01:23}}
So I think private credit is
appealing for two main reasons.

{{00:01:26}}
One is that the instrument
itself is very resilient.

{{00:01:29}}
It's floating rate senior secured debt.

{{00:01:32}}
So you're first in the capital structure,
which gives you a lot more control of your

{{00:01:36}}
own destiny especially in restructurings.

{{00:01:39}}
And then also you don't, you're not
taking interest rate risk, given

{{00:01:42}}
that it's a floating rate instrument.

{{00:01:44}}
And then I think the other thing,
too, is just general consistency of

{{00:01:47}}
performance over a long period of time.

{{00:01:49}}
At Golub, we've been doing this now for
nearly 30 years, and what we found is

{{00:01:54}}
that we're able to produce consistent
premium returns because we focus on

{{00:02:00}}
investing in companies that are recession
resilient, durable business models

{{00:02:05}}
that are non cyclical, and as a result
we see very consistent performance

{{00:02:10}}
from year to year, and I think that
consistency is really what's driving.

{{00:02:14}}
It could be a true strategic allocation
for investors, regardless of what the

{{00:02:18}}
Fed is doing around interest rates.

{{00:02:26}}
Golub invests in a variety
of different industries.

{{00:02:29}}
Our core industries include software,
healthcare, consumer, financial

{{00:02:34}}
services, and diversified industries.

{{00:02:36}}
I could probably speak to software the
best, given that's, my area of expertise.

{{00:02:41}}
And, we've always really liked software
as a sector, from a credit perspective.

{{00:02:45}}
You have.

{{00:02:47}}
Mission critical enterprise software
companies that are solving key

{{00:02:52}}
workflow needs of their customers.

{{00:02:54}}
And as a result, you have very
loyal customers that renew from year

{{00:02:57}}
to year and have very predictable
subscription based revenue streams.

{{00:03:01}}
So that's been a sector that we've always
really focused on and invested behind.

{{00:03:06}}
And I think what we're seeing in the
market right now is that that thesis has

{{00:03:10}}
definitely played out, which is pretty
remarkable when you think about it because

{{00:03:14}}
the last couple of years have not been.

{{00:03:16}}
That attractive from an equity
market's perspective in software.

{{00:03:20}}
We're seeing valuation pressure
with growth rates decelerating

{{00:03:23}}
in software businesses.

{{00:03:25}}
But what we're seeing in our
portfolio is even though there is some

{{00:03:29}}
deceleration in growth, we're seeing
a lot of growth in profitability.

{{00:03:33}}
Private equity firms are really
focusing in on where they're spending,

{{00:03:37}}
where they're seeing return on
their capital and return on spend.

{{00:03:40}}
And so they're cut, cutting costs
and helping to improve margins.

{{00:03:44}}
And so I think that's been really
healthy and resulted in EBITDA

{{00:03:47}}
margin expansion for our companies.

{{00:03:49}}
And then we're also seeing installed
bases for software companies

{{00:03:52}}
remain incredibly resilient and
retention rates remain strong.

{{00:03:57}}
So overall, we're seeing
very resilient performance.

{{00:04:01}}
Of course any manager out there,
we have a tail of companies that

{{00:04:05}}
we're focused on that we are a
little bit more concerned about.

{{00:04:08}}
Maybe they had more trouble
adjusting to this higher interest

{{00:04:11}}
rate environment than others.

{{00:04:13}}
But there I think we're really focused
on making sure we have early detection of

{{00:04:17}}
issues so that we can be at the table well
in advance of any major issues arising.

{{00:04:28}}
I think it really comes
down to maintaining very

{{00:04:31}}
high underwriting standards.

{{00:04:34}}
Golub is a credit for a shop.

{{00:04:35}}
We always lead with making sure
that companies that we're investing

{{00:04:40}}
in are very solid from a credit
and investment perspective.

{{00:04:44}}
So I think that is something that in
an environment like this where it's

{{00:04:47}}
so competitive and documentation terms
are becoming increasingly borrower

{{00:04:51}}
friendly, we really lean on that first
in terms of making sure we're picking

{{00:04:55}}
the right companies but then obviously
we're also still focused on making sure

{{00:05:00}}
we get key legal protections in place
so that if things don't go exactly

{{00:05:04}}
according to plan, we still have the
key financial reporting and protections

{{00:05:09}}
that we need to be at the table
early, which I think is a really key.

{{00:05:13}}
Aspect of making sure you're navigating
troubled situations well, and I think that

{{00:05:19}}
will ultimately be what drives dispersion
and manager performance as well over time.

{{00:05:23}}
And then in addition to that, in this
environment, we're also building out

{{00:05:27}}
some bandwidth within our workouts team
to make sure that we have the resources

{{00:05:31}}
necessary to navigate restructurings
if they increase in the future, and

{{00:05:36}}
ultimately step in the owner if we
as in as the owner if we need to.

Yeah, so I think there's a couple
of factors that have driven deal

volume to be more muted in 2024
and quite frankly 2023 as well.

And I think that was the confluence of
uncertainty both around the economic

As well as uncertainty over the election,
and then, of course, there was obviously

the disconnect between buyer and
seller expectations around valuations.

But I think as we project into
2025, I think we're more optimistic

because some of those factors are
showing improvement in terms of

You also have the election that's behind
us, and then and then we're hoping once

that's You know, a couple companies start
trading and valuation becomes a little bit

more of a consensus view that you'll see
more of a steady return for a deal flow.

And then on top of that,
you also have market forces.

You have 2 trillion of private
equity dry powder sitting on the

And then you also have private
equity firms feeling pressure

So I think those two market forces
will certainly start to have an

impact and you'll start to see
more M& A volume in the future.

So I think private credit is
appealing for two main reasons.

One is that the instrument
itself is very resilient.

So you're first in the capital structure,
which gives you a lot more control of your

own destiny especially in restructurings.

And then also you don't, you're not
taking interest rate risk, given

And then I think the other thing,
too, is just general consistency of

At Golub, we've been doing this now for
nearly 30 years, and what we found is

that we're able to produce consistent
premium returns because we focus on

investing in companies that are recession
resilient, durable business models

that are non cyclical, and as a result
we see very consistent performance

from year to year, and I think that
consistency is really what's driving.

It could be a true strategic allocation
for investors, regardless of what the

Golub invests in a variety
of different industries.

Our core industries include software,
healthcare, consumer, financial

I could probably speak to software the
best, given that's, my area of expertise.

And, we've always really liked software
as a sector, from a credit perspective.

Mission critical enterprise software
companies that are solving key

And as a result, you have very
loyal customers that renew from year

to year and have very predictable
subscription based revenue streams.

So that's been a sector that we've always
really focused on and invested behind.

And I think what we're seeing in the
market right now is that that thesis has

definitely played out, which is pretty
remarkable when you think about it because

That attractive from an equity
market's perspective in software.

We're seeing valuation pressure
with growth rates decelerating

But what we're seeing in our
portfolio is even though there is some

deceleration in growth, we're seeing
a lot of growth in profitability.

Private equity firms are really
focusing in on where they're spending,

where they're seeing return on
their capital and return on spend.

And so they're cut, cutting costs
and helping to improve margins.

And so I think that's been really
healthy and resulted in EBITDA

And then we're also seeing installed
bases for software companies

remain incredibly resilient and
retention rates remain strong.

So overall, we're seeing
very resilient performance.

Of course any manager out there,
we have a tail of companies that

we're focused on that we are a
little bit more concerned about.

Maybe they had more trouble
adjusting to this higher interest

But there I think we're really focused
on making sure we have early detection of

issues so that we can be at the table well
in advance of any major issues arising.

I think it really comes
down to maintaining very

We always lead with making sure
that companies that we're investing

in are very solid from a credit
and investment perspective.

So I think that is something that in
an environment like this where it's

so competitive and documentation terms
are becoming increasingly borrower

friendly, we really lean on that first
in terms of making sure we're picking

the right companies but then obviously
we're also still focused on making sure

we get key legal protections in place
so that if things don't go exactly

according to plan, we still have the
key financial reporting and protections

that we need to be at the table
early, which I think is a really key.

Aspect of making sure you're navigating
troubled situations well, and I think that

will ultimately be what drives dispersion
and manager performance as well over time.

And then in addition to that, in this
environment, we're also building out

some bandwidth within our workouts team
to make sure that we have the resources

necessary to navigate restructurings
if they increase in the future, and

ultimately step in the owner if we
as in as the owner if we need to.

Join us for an insightful interview with Tia Malhotra, Managing Director at Golub Capital, filmed live at SuperReturn Private Credit US. Discover her take on the muted deal activity in 2024 and her outlook for the year ahead. Learn why private credit remains a compelling option for investors, which industries are showing the most resilience, and how Golub Capital effectively manages risk and navigates uncertainty in today's market.