Private Markets 360° | Episode 47: Risk, Resilience, and Relationships with Churchill's Alona Gornick

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Jocelyn Lewis   00:00:01

Welcome to Private Markets 360 insiders guide to the world of private investments. Today, we're joined by Elona Gornk, Managing Director and Senior Investment Strategist at Churchill Asset Management. With a career spanning 25 years across investment banking and the buy side, Elona has navigated the evolution of private credit from the early days of alternatives before they became mainstream and experienced firsthand the seismic shifts brought on by the 2008 financial crisis. Elona's journey has taken her from originating high-yield deals at Oaktree and progressing into private placements at TIAA to pioneering Churchill's approach to sourcing deals in the private credit middle market, where she was the firm's very first originator. Over the years, she has focused on working with private equity sponsors to source and structure deals, bringing a credit perspective that blends high-yield expertise with investment-grade discipline. Now as Churchill expands beyond institutional capital to serve the growing wealth investor segment, Ilona acts as a strategist, bridging investment professionals and clients and helping investors understand the evolving landscape of private credit. In this episode, Alona shares her insights on the competitive dynamics of wealth management, the importance of consistency in deal structuring and the critical questions high net worth investors should be asking in today's market. Ilona, welcome to Private Markets 360. It's a pleasure to have you join us today.How are you?

Alona Gornick   00:01:54

Thank you, Jocelyn. So great to be here and doing well.

Jocelyn Lewis   00:01:57

Excellent.

Christina McNamara   00:01:58

Welcome, Alona. You've spent 25 years in finance across investment banking and private credit. What initially attracted you to private credit? And how has your perspective evolved over those 25 years?

Alona Gornick   00:02:14

Great and interesting question as I think back, I think what first attracted me to private credit was that it sort of felt like one of the more thoughtful corners of finance. If you think about investment banking, that's where I got my start. You learn a ton about markets, execution, pace. It's very quick. It's very transaction-oriented. But as I learned about private credit, I always felt that there was a bit more of a completeness to it. You're not just analyzing numbers here, you're really thinking about underwriting a business, its capital structure and particularly with what we do here at Churchill, the sponsor relationship. And given you're a buy-and-hold investor here, what can go wrong in the downside, so downside scenario analysis. So what I liked then and what I still like now is that private credit really combines this sort of analytical rigor with judgment. And it's really quantitative, but it's also, I guess, very human. You're evaluating people, what incentivizes them, the alignment of interest in a deal and really the resilience of those people and the business model that we're evaluating underneath. And that's really always appealed to me. But in terms of perspective evolving over time, I guess I'd say earlier in my career, I was probably more focused on whether a deal looked attractive on its own, right? And now I think about a lot more in terms of is the business we're lending to the right company? Is it the right capital structure? And are we getting paid appropriately for that risk? And particularly with private credit, who are we partnering with? The relationship is so important. The other thing that I'd say has changed about private credit is really the scale and the visibility of the asset class altogether, say, private credit has become very much more mainstream, and that's exciting. It's definitely in the news and such a buzzword, hopefully, for the positive, but it also means that manager selection, I think, matters a lot more now than ever. And growth in the asset class is a positive but it doesn't reduce the need for discipline. I think it actually increases that need for discipline. So I'd say I was initially drawn to private credit because it was intellectually interesting, but I've stayed with it because I think it rewards more of that patient mindset, the ability to recognize patterns and also shows you a lot and having humility. I'd say even the word humility is pretty important here. And it's useful in credit because the market has a pretty interesting way of correcting overconfidence if you use it too much.

Jocelyn Lewis   00:05:07

Thank you for that explanation, Alona. I think that it really paints a nice picture of how you move from that really great experience that you've got within investment banking, where it is definitely more transactional focus where you're chasing those individual deals. And now you're looking more broadly across the private credit landscape and how particular deals really fit within an existing portfolio. And that evolution seems to mirror how different platforms themselves have scaled and been able to differentiate themselves. And with that in mind, I want to understand more about Churchill specifically and how the position that Churchill has within Nuveen's ecosystem enhances what you're able to do and the value that you're able to then deliver to your clients.

Alona Gornick   00:06:05

Sure. I think Churchill is in a really interesting position. We've got a unique combination of what I guess I'd call specialization at scale behind it. So with Churchill, we've been really focused on the core middle market or middle market in general and specifically core middle market that we can talk about, where we are trying to identify top-performing companies that are backed by leading private equity firms here in the U.S., and we do this with a very sponsor-centric approach. In doing so, I think that having that specialization is a really important focus that matters. And it's often where your real edge can come in as an investment firm, right? Knowing your market really well, understanding your sources of deal flow, the sponsor community from whom we source deal flow from, structuring those transactions thoughtfully and appropriately for that size of the business that it is and really staying disciplined over time. I'd say at the same time, because we sit, as you noted, within Nuveen's broader ecosystem, we've got a really interesting and different but equally important layer of value here. where if you're a client in Churchill, you're not just evaluating our investment judgment. I feel like clients here are also evaluating and they should, the platform that stands behind us, right? The infrastructure, the governance, the risk management, our level of reporting, the depth of the reporting and really the long-term stability and the support that we can get as an investment team broadly. So that combination living within Nuveen's ecosystem becomes, I'd say, even more meaningful as the private markets open up, we're seeing investors gain interest in this asset class beyond traditional institutional investors. And whether you're talking to an institution or a family office or a wealth investor through their adviser, people really ultimately want the confidence that they are going to be working with a platform that offers specialization, but both the durability lasts for a long time, right? So Churchill today, we've got about $64 billion of committed capital. And when you combine us with Arkmont, our European middle market business, we're at nearly $100 billion. So that really speaks to that scale. Each of the platforms here remain very specialized. We've each got our own long-standing reputations that we've hard earned over multiple decades. So with Nuveen, our ultimate parent TIAA as well being one of the highest rated insurance companies in the U.S., I really think that speaks to that durability and that really appeals to investors. So I'd frame it that Churchill brings both an expertise and specialization that investors are looking for and Nuveen would help really bring that kind of institutional strength, the connectivity that really allows us to broaden our distribution and our product development at scale very thoughtfully.

Christina McNamara   00:09:23

That focus on relationships and long-term alignment really does set the stage for how Churchill approaches the market today. So to build on that, Churchill is known for originating deals through private equity sponsors. What makes this approach unique? And how does it benefit both Churchill and its clients?

Alona Gornick   00:09:45

Sure. With our focus on sponsor relationships, I'd say you're getting to the heart of our model. I think what's really important is that private credit and specifically direct lending where we're focused, isn't really just about deal access for the sake of access. It's really about creating a depth and a durability of those relationships, those sponsor relationships I mentioned and what that can enable. So at Churchill, we've really thoughtfully created what I think is unique about our platform, a nearly $13 billion portfolio of commitments we've made into funds, now over 350 different private equity funds that ultimately roll up to about 150 different general partners or managers. That matters because it shows that we're not just a lender that's showing up when the financing is needed. We, as Churchill as a broader platform really can build out more of a broader connectivity with our sources of deal flow here, these sponsors. That is first rooted in our LP commitments and then ultimately complemented by the variety of direct financing capabilities that we can offer, senior, junior, equity co-insecondaries. So I think that really resonates across the private equity ecosystem. And you've got to ask yourself, why would that be valuable to investors. Ultimately, it's because having these strong sponsor relationships can really -- when you look at the deal level, translate for the most part into earlier looks at opportunities, right, and more time to underwrite, more insight, if you will, into who you're partnering with. We've got a lot of intel because we're invested with a lot of these sponsors in their funds. So with sponsor-backed lending, you're not only evaluating the company that you're lending to, you're also evaluating that sponsor and their track record and the support management teams and really how they behave when things get more difficult. So for clients, I think the ultimate benefit that we're giving them is the ability to be really selective, right? So if we have a good network and this good network of sponsors doesn't necessarily mean we're going to do more deals. Ideally, I think it means what you should see is enough high-quality opportunities so that you can be more selective about the ones we ultimately choose. So where we're focused, specifically in the core middle market, where we really align with a target range of companies that vary from on the small end, $10 million to $20 million of EBITDA to the top end of about $100 million of EBITDA. This is a part of the market where relationships really matter. And what we see in terms of the best outcomes, they don't necessarily come from being the most aggressive lender in the room. We're invited to participate and provide a term sheet. Private equity sponsors that we work with in this part of the market typically want lenders who are reliable, who are also constructive, but they're consistent across cycles, across markets. So those who can partner not only in good times, but also through tough times. I often say that we've gone through just a few here at Churchill over the past 20 years, I'd say, is extremely important. But that uniqueness of Churchill's approach being rooted in sponsor relationships, is really intentional. And I think one of the main engines of how we think about driving growth and differentiation for Churchill in the core middle market as demonstrated by significant repeat business for the platform.

Jocelyn Lewis   00:13:42

And in any business, you want to have the right partners and you want to be able to drive repeatable business because that's important as you scale, as you mentioned, having that reliability and not having to kind of start from scratch with every relationship is also really beneficial because like you mentioned, it is not only about who can provide that financing that a sponsor would be looking for, but who can provide the financing in a manner that is expected and deliver upon that. So I think that very deliberate and repeatable approach to sourcing and structuring deals that you mentioned really underpins how Churchill is able to grow and continuously differentiate itself. But stepping back from just Churchill specifically, it also raises a broader question as you're also getting more capital from the retail or high net worth individuals via financial advisers, is there any criteria that you would suggest that the financial adviser community should prioritize when they are evaluating investment managers in this current market environment?

Alona Gornick   00:15:07

Yes. It's been fascinating to sit in the seat of a strategist focused on this investment community or channel. in addition to thinking about, obviously, the quantitative metrics that everyone should be looking at, track record and your performance through cycles to the extent you've been doing what you're doing for a long enough time, I probably boil it down to a few things. really sourcing, huge, number one. Two, I'd say selectivity, as I mentioned before, is really big. Three, structure sort of risk management, how risk focused on risk you are. And then four, I'd say, transparency, kind of -- it sounds simple, but transparency, and I'll talk about in a little bit. But with first on sourcing, as we started talking about earlier, I think advisers should really identify and fully understand and feel comfortable with where are the deals coming from. In a crowded market, differentiated sourcing really matters because it can affect many things other than even having the opportunity to look at the deal flow, pricing, documentation and really how early you can get that look and give you just that much more time to get comfortable with this asset, do more diligence than someone else, not have to be squeezed on the time because we're talking about investment banking, there's a bit more of like an execution and pace and fast pace measure to it with private credit, the more time you have, hopefully, the better underwriting you can actually accomplish. So your sourcing, as I like to say, is a bit more of your destiny in private credit. So really understanding how a manager finds and selects its deals and how repeatable and defensible that process is, is extremely important. I'd say second, on selectivity and sort of risk management. This is a big one for me. I often think that a manager's decline or pass rate can be just as revealing if calculated without a lot of additions to it as their deployment rate, right? How much you turn things down? It's very hard. It's very hard to turn deals down and multiple times to the same private equity firm. If what you ultimately do want to do is get to investing, right, and deploying. So that is an extremely important measure, I think advisers should spend a little more time on. And in a market where we have seen a ton of capital come in and more so even through the wealth channel as it's on its early innings moving forward, the pressure on the part of lenders or managers here to put money to work has really increased. So advisers should want to know what a manager can say no to. And to the extent there are any issues on -- in a portfolio from a risk perspective to the extent that happens, what is their team's ability to work through that? Do they have the right capabilities in terms of workout and restructuring? How do they assess and integrate that risk management kind of capability? And do they use technology or AI to assess that early on, try to eliminate the surprises as much as possible? And how do they improve their workout and restructuring scenarios from a lessons learned perspective. The last I'll say is that point about transparency, and we can talk about this here. The managers nowadays, I think, the better you can explain your strategy, how -- what your competitive edge really is clearly and candidly, I think it's so important. It might sound on the cover of every fact sheet or presentation that we all somewhat do the same thing. So it's really important to understand what -- from an adviser standpoint, what does that manager actually do and what makes them different, especially as we see private credit expand further into this wealth channel, I do think advisers need to ask and look for managers who can educate, right, help them better understand both risks and opportunities and not just market to them, right, and sell them on a product. I think this is also why we've seen the surge in adviser interest here more recently, why we think that makes the diligence on these big important questions or criteria even more important. There has continued to be interest in this asset class, meaningfully so. surveys tend to point to steady to increasing appetite to allocate to private credit. I'm looking at a KKR 2025 RIA survey that showed RA is planning to increase private credit from those -- the percent wanting to increase jump from 15% to 53%. That's a significant continued appetite towards private credit. So as we see that, I think this diligence and this question asking about criteria and asking beyond the quantitative measures is extremely important.

Christina McNamara   00:20:28

And that strategy and approach becomes even more important as market conditions start to shift, whether it's changes in interest rates, deal flow or overall economic uncertainty, those dynamics can really test an investment strategy -- so with that in mind, how do shifting market conditions influence Churchill's investment decisions? And just as importantly, its willingness to walk away from deals.

Alona Gornick   00:21:00

Yes, you make a very good point. I'd say market conditions absolutely do influence sort of the opportunity set that we look at, of course. But I don't think that they should cause you to abandon your standards by any means. I think the goal ultimately is to be adaptive without becoming reactive. So for Churchill, we've really developed an investment philosophy and an underwriting rigor that stems from over 20 years of direct lending experience. Now that means in 20 years, we've seen multiple cycles. We've seen the effects of macro shocks and different rate environments. And this has resulted in a very unrelenting focus on credit quality. That is always first for us and really sticking to disciplined deal structuring regardless of what happens in the market, right? So we need to be prepared to walk away from deals that just don't meet our criteria. It will always be credit quality over yield for us or aligning with the market reality, of course. So in more competitive markets, as we have seen the case in some parts of the middle market as we continue to see lenders create and amass more capital, the pressure often shows up in some ways. Here, I talk about tighter spreads, higher leverage, weaker documentation, generally a temptation to stretch. But in more uncertain times, right, the opposite can happen, and we are experiencing now potentially a little bit more uncertainty. Well, we're getting some stability under our feet as we look at private credit through the lens of BDCs and nontraded BDCs at that. But the opposite can happen when we approach uncertain markets and people can become maybe too defensive or overly defensive and then ultimately miss on opportunities, right? And the leaning back approach at the wrong time could also be bad for investment outcomes. So the challenge ultimately is don't get too pulled too far in either one direction or the other, right? I think at Churchill, the right posture will be to really stay anchored in that route for us, which was credit quality, right, over yield and really thinking about underwriting rigor and truly an ultimate risk-adjusted return with durability. If the structure that we're looking at looks too weak, if the leverage feels too high or too aggressive, if the business just has too much exposure to one customer or one industry over others or if the compensation or what we're getting paid maybe doesn't match the risk that we're assessing, then yes, we do have to be willing to walk away. And I think that walkaway discipline isn't a failure in private credit or showing something to be noted, it's really key or core to private credit. So yes, I do think the market conditions matter, but they should influence how thoughtfully you're investing. And it's most important to make sure that you stay disciplined because sometimes the most important investment decision is really the one you don't make or the deal you do walk away from. And I think that, that has really helped Churchill maintain its credibility, not only with the investors that trust us with their capital, but also the private equity sponsors who we work with, we partner with and we source deal flow from on a regular basis.

Jocelyn Lewis   00:24:39

And you have a track record that includes that long-standing discipline that's really, I would think, help you build credibility through those different cycles and that you understand what LPs are looking for, what the sponsors that you're partnering are looking for I'm curious now that private credit is gaining that wider audience. And as you're expanding your kind of partnerships, we'll call them, just beyond institutional capital, what is really driving the shift beyond institutional capital? And also, how are the needs beyond that institutional capital different than some of the, I guess, institutional capital that you're used to partnering with?

Alona Gornick   00:25:31

I'd say what's driving the shift is really the private markets at large have become a lot more relevant to the wealth channel. I'd say as I talk to and survey and read surveys about advisers or family offices or high net worth investors, they're really looking for income and diversification and opportunities that are beyond the traditional public markets -- and private credit really fits naturally into that conversation, right? And the data is definitely supporting this trend. Another interesting survey that we found, BlackRock had a 2025 survey, but this is for global family offices, where family offices plan to increase allocations not only in '25, but into '26. So I really think that as we look at this continued shift, really meeting the income diversification, lack of volatility, lack of correlation that investors are looking for in their portfolios, private credit is going to be a very important topic. But the needs, you're right, are different. I do think institutional investors can often come in with a lot more familiarity with the typical mechanism in which you've accessed private credit, which would be a drawdown structure. And they typically understand upfront that there are trade-offs in liquidity. There's going to be vintage diversification because these had typically been or historically been funds by vintage and a drawdown mechanism or closed term vehicle and pacing or deploying over time, right? In the wealth channel, I think those concepts may be newer. So the education factor becomes extremely important and that much more important. With wealth investors, I'd say they're often asking maybe more practical questions, really thinking about, one, like how does this fit in my portfolio or two, what kind of income should I expect? Three, what are the liquidity terms? How does that work? One we're getting very often now is valuation. How do I think about valuation? How are you valuing these private assets? And then ultimately, I think the understanding of what role should private credit play in my portfolio relative to what I already have there, the public part, the fixed income or the equities. And I think these are the right questions to ask as wealth is sort of getting more familiar for the first time with this asset class. So that's, I think, a starting point. But as they get more comfortable, they obviously can go deeper. But I do think that, that's a very different mindset that the wealth investors are sort of bringing to private credit somewhat for the first time versus the institutional side. Ultimately, I do think spending a lot more time about risk is really ultimately what's needed here and having advisers really understand and be able to explain what they learned and interpret that and then explain it again to their clients in a trustworthy way that there are both risks and rewards to this illiquidity of private credit and explain how credit selection matters. These portfolios are constructed not based off of benchmarks over or underweighting a benchmark, but uniquely and bespoke. And then what do the rates and yields sort of look like today and longer term and with a historic context, right? So I think portfolio implementation generally tends to be a lot more of a focus for wealth than it is with institutions. And given we're still on the earlier days, I do think advisers need a bit of help. with understanding how to implement private credit. And a big question we tend to get and what they focus on is where should I take it from? We have often seen most of that reallocating from fixed income to private credit or a new sleeve than alts generally, and some of that alts are private alts being dedicated to private credit, but it is unique and something where we spend a lot of time.

Christina McNamara   00:29:56

And as we've been discussing opportunities that lie within private credit, it's also important to take a clear-eyed look at some of the risks, especially in a market that continues to evolve. With that in mind, what are some of the key risks high net worth investors should understand when entering private credit? And how does Church Hill address them?

Alona Gornick   00:30:20

I think the main risks for high net worth investors and wealth in general, the wealth channel, they need to understand there are a few. I'd say credit risk for sure, but liquidity risk and then also manager risk and then ultimately, expectation risk. I think this is very important today because there's been a bit of like it's been coming to the surface, what do you expect out of this asset class in this fund versus what you're seeing and what is the longer-term reality? So starting with credit risk, I think this is a very obvious one. Ultimately, with private credit, there is multiple segments or subsegments underneath private credit as an umbrella, the largest of which is where Churchill focus, which is direct lending to companies. These loans to businesses are very easy to understand at that level. The businesses can underperform, right? Their earnings can weaken due to that, the leverage or the debt as a ratio to the cash flow they generate can become too high. And then ultimately, the sectors that they are in or that they serve can come under pressure. That's why underwriting and structure are so important, not just understanding that you like the business, but the structure around that. I think liquidity risk is a huge one. Private credit is not built to behave like a daily traded bond fund. Investors need to understand the terms of the vehicle that they're investing in. So they need to really understand does that liquidity term or reduced liquidity of the vehicle itself and access to my investment align with their own liquidity needs, right? Limited redemptions compared to the public market doesn't necessarily mean it's a bad thing. I think that seeing that as a feature of the vehicle to give you exposure, opportunity to have exposure to an illiquid asset class is a big plus or a positive. Ultimately, I'd say seeing redemptions because it is an important topic, and we are seeing it right now, redemptions in a fund doesn't necessarily signal that the fund itself has meaningful instability. But I do think if we were to see concentrated or sustained outflows that potentially could impact performance in the long run. I think that we've got to keep in mind the difference between headline risk and underlying fundamentals, but there could certainly be maybe an impact on fundraising or deal sourcing. But ultimately, thinking about liquidity risk and understanding what that means and what you're gaining access to and how it's guided or the guardrails around that is extremely important. Manager risk, as I mentioned, and we've talked about manager selection being extremely important. I think that's really something to better understand for advisers in terms of manager selection in this asset class. We've talked about underwriting rigor. Everyone can have their own playbook. It's very important to understand the front-end work on a deal, the process to taking something to an investment committee, the discussion at investment committee, how a deal is voted on unanimously or by vote. All that's really important in terms of how you think about a manager's process, the documentation standards they have, how they ultimately think about the portfolio construction, what feels a little too much overweight or underweight in any specific sector, concentration risk, inside of how a manager views that. And even as we talked about earlier, workout experience, do they have that or not? That's all embedded in thinking about risk around a manager, and that can vary a lot by manager. And last, I mentioned the expectations. I do think there is a need to understand what private credit is actually designed to do and what it isn't designed to do. And that's really all going to stem from the education approach, right? Firms really need to educate investors about this asset class, the landscape and help them build confidence about making informed decisions. So private credit, yes, it can be a really compelling source of income. We talked about that. Diversification, we talked about that. But at the same time, it does require patience -- it does require the right sort of sizing and some realistic expectations, primarily, even as you think about returns, this is a primarily floating rate asset class. So it will have -- it will have an impact or rates will have an impact on it. So how does Churchill address that? You asked me. I'd say we address this through our disciplined underwriting, right? The depth and strength of the sponsor relationships we've developed over 20 years, really rooted in how we underwrite not only the deal, but the sponsor. And if we ultimately invest in that part of our business that invests in funds, that's a really big defense or first line of defense and understanding that much more about the sponsor, being highly selective, having the structural protections in each of our deals that matter to our investors and us and really transparency, explaining what we do and how we do it and reporting on that. I would say Churchill's scale, the sponsor connectivity, this origination model that we've talked about rooted in being a GP-centric approach really are all part of that foundation and ultimately allow us to keep that discipline and walk away from unsuitable deals and really protect our investors' interest. So that's how I think we would address these kind of key risks that I mentioned. Ultimately, I'd say to investors, don't just ask or focus on yield. I think you really need to understand what's underneath that yield, right? How did the manager get to that yield? And what protections are they building to support that yield? -- and ultimately, who is responsible for sourcing and delivering that yield on a consistent basis.

Jocelyn Lewis   00:36:41

Alana, that was a great overview of the importance of understanding those 4 key risks that you mentioned, credit risk, liquidity risk, manager risk and expectation risk. And it's really important so investors aren't caught off guard. And for those that are newer to private credit, that naturally leads to the question of advice and insights. And what practical advice would you offer wealth managers and high net worth individuals to help them make more confident decisions?

Alona Gornick   00:37:18

The advice-wise, I think back over time and now even particularly right now where we are, there's so much uncertainty and scrutiny around this asset class, which I think still has intact merits that will deliver long-term benefits over time. But I think advice-wise, you really need to think about really learning about who you really are through good and bad times and who you're dealing with. And what I mean by that is when I think about even more recently, what's really stood out to me in terms of identifying a good deal or an opportunity that looked like a great at first glance, but then ultimately was not guided well. I'd say, I think taking the time to understand how does this sit within the broader landscape of private credit -- and how does this really differ from what I'm thinking about on the traditional side of what I do. So when you do that, you've got to ask the question or I mean, what I'm trying to help in my meeting is the question behind the question. There's the obvious kind of check the box diligence questions you have. We talked about the quantitative measures that are very easy to ask. The qualitative are so difficult because there isn't a linear scale of assessing assigning points like 1 to 10, where it's very hard to say what's good, better, best on these more qualitative aspects. So I do think having -- gathering that much information across a variety of managers, not just stopping at 1 or 2 will be extremely important you have a basis of comparison, right? You have the opportunity to assess for yourself what you're looking for. And if everything you're hearing tends to gravitate towards one side, I'd say seeing what stands out and why they stand out would be important. I think also being -- having a full awareness around those risks we talked about, the illiquidity, the redemption, there are different ways to access your capital back, but that also implies there are different ways to manage a portfolio to support that by way of the manager. So I do think that is also just as important as to what type of fund structure does the manager take and why did they take it? And how do they manage to that? What are they doing that is core to their strategy and what are they doing differently to support just to support that fund. I do think that, that's different. And then ultimately, use all the education that the manager is giving you, use education outside of the manager and don't rush. I think we've spent a ton of time with some advisers trying to make their first private credit allocation decision. And when I say a ton, I mean 12 months to even longer than a year. And we are very patient as a manager, and we continue to have multiple calls with them. And I think it's really watching over time that what you see is what you get with the manager. So allow yourself that time, right? -- allow yourself to see -- have that first meeting, that follow-up meeting and follow up over the next few quarters to see if it's really playing out.

Jocelyn Lewis   00:40:57

And Alana, what criteria should financial advisers prioritize particularly when they're looking to invest in private credit and get that allocation to the middle market specifically?

Alona Gornick   00:41:11

Yes. I think this is a really important question as we think about education, which is so critical to assessing managers in the middle market. In addition to looking at, obviously, the quantitative metrics that an adviser can obtain through fact sheets and presentations on track record, performance cycles, I think there's also a very important element to look at on a qualitative basis in terms of aspects of the manager and its platform and ultimately, its strategy. A few that I'd mention are, one, sourcing, right? For sourcing, I think it's extremely important for advisers to understand where the deals actually come from. In a crowded market, differentiated sourcing really matters because it can ultimately affect the pricing on that deal, the documentation tightness, if you will, of that deal and really the amount of time that a manager has to do real underwriting largely based upon how early you are in that calling order in terms of sourcing, how close is your relationship with your source of deal flow? And do they call you for a first look at a deal before they call others? Do they come back to you to call you as a last look because they've taken a little sense of the market, but really value your relationship ultimately and give you that opportunity to take a look at it on a last look basis. So I think ultimately, sourcing as a private credit manager will ultimately be your destiny in terms of the deals that you have the opportunity to look at and ultimately execute on in your portfolio. So as an adviser, absolutely need to understand how a manager finds and selects deals, how repeatable and defensible is that process. And if you can believe that, that's a successful sourcing strategy, that should show up in their strength of network, their ability to have insight and conviction on deals, their willingness to lean in and walk away. That's all in sourcing. It isn't quantitative, it's more qualitative, but one together. I'd say second, really looking at selectivity that will be born or out of sourcing, how selective a manager can be. This is a big one for me. I think often a manager's pass rate or decline rate can be just as revealing as their deployment rate. So when we're seeing a market like we're seeing today where we've got a lot of capital coming into private credit funds, direct lending funds, there's a lot of pressure to put that money to work. So advisers should want to know when a manager is willing to say no and how often do they do that and reasons for that path. That should ultimately lead to and hopefully less in the way of issues in the portfolio, but really asking about risk management is a third area. What does the team have in terms of risk management capabilities? How integrated is that risk management team with the regular underwriting team? How actionable are the assessments of the risk management protocols that they put in place? Do they use technology, dashboards, alerts and even AI to help assess that risk more proactively and hopefully improve workout and restructuring scenarios to the extent they need to handle stress or distressed situations and ultimately protect investor capital. So I do think having an assessment of, while qualitative, the level and capability of risk management is really an important criteria. And then ultimately, I think thinking about structure also here, you got to think about where in the capital structure is the manager investing, what protections do they have? Typically, how strong is the documentation, how seriously do they think about the downside? Those can sound a little dull in a market, but in a good market, but I do think that they can be much more interesting as we come into some uncertainty here. But last, I'd say another qualitative aspect to think about is the competitive edge. And what I mean by that is what is the secret sauce of the manager? What do they tout as their huge differentiation piece. Oftentimes, that can come down to explaining their strategy. And can they explain that very clearly and candidly? And how is it different and from what others are doing and why do they pursue it? I think this is extremely important for Churchill, when we talk about our strategy or our edge, if you will, I think it comes in 2 ways. We talk about our edge being very sponsor-centric, our ability to fully integrate fund investments onto our platform, giving us advantages in what I mentioned before, sourcing, selectivity, information and structure. All of that lends itself because of our model and the edge. But to our strategy, I think our strategy is very unique in how we focus directly in the core middle market. The middle market itself is pretty large. There's additional specialization we've seen be very successful for managers. For us, that's generally core middle market between, call it, $10 million to $20 million on the small end to about $100 million on the larger end of EBITDA, the cash flow that the business generates. Being focused on this part of the market affords us many benefits for us and for our investors. I'd say here, being able to explain that to investors and help them understand why -- we continue to stay here as we've grown, as our scale has allowed us to move upmarket, we remain very focused here because it, one, gives us a huge opportunity set to choose from. The very, very vast amount of middle market companies in the broader middle market, over 200,000 middle market companies. I'd say over half of that really sized in the range we're focused on, close to 60%. So close to a majority of what we have in private credit in terms of the companies to lend to really sits in our top end of our funnel, allowing us to be extremely selective, build highly diversified portfolios, really look at different industries and really reduce concentration risk. Two, I'd say structural protections are very much an interesting feature for core middle market, where we can have modest or more conservative leverage, financial maintenance covenants that tend to get negotiated away in the upper end of the middle market as you see businesses get larger and have more negotiating power. So I think that, that's very unique and a good edge for our part of the market. And last, I'd say the ability to continuously deploy and have this sort of start small, start modest in the lending or the debt-to-EBITDA that we provide to a business. And as it proves out growth milestones, we will incrementally finance that business and allow us to have more deployment, continuous deployment through markets even when new M&A, new buyout activity is muted or slow or still recovering. It's a really fascinating aspect about the core middle market that we've really benefited from and think will be -- continue to be a great opportunity for investors going forward. So I'd say those areas in terms of criteria sourcing, selectivity, risk management, structure and ultimately understanding the competitive edge can all be very qualitative in nature, but really fitting that to an investment approach and looking at what you want to add to your portfolio is extremely important outside of just quantitative metrics.

Christina McNamara   00:49:26

And stepping back from the market itself, it's always interesting to understand the experiences that shape an investor's perspective over time. Looking back on your 25 years in the industry, is there a pivotal moment or a lesson that most shaped your approach to leadership and investing?

Alona Gornick   00:49:47

That's a great question. I love it because I think it's a good pause moment to think about what is really shaped how I think about, I guess, investing and leadership together. But when I think through the past 20, 25 years and looking through really milestone moments when I've either been at Oaktree and taken the opportunity to join TIA or move to Churchill, there have been moments in time where I had this front row seat through cycles. And I feel so grateful for that because I think it's been an interesting sort of positive part of the cycle, if you will. We haven't seen a real down cycle in such a long time. And I really am grateful that I've been in finance long enough to have seen that. But I think seeing what does that show you in terms of the people you work with through a tough time is extremely important. Anyone can look good or sound good I call like throwing spaghetti at the wall and seeing if it sticks in an accommodating market when the market is great. I think the real test is how do you behave? How do you look at opportunities when it's tougher, right? When you don't have all the information when it feels like you should hide under a rock when you think that the outcome is going to be extremely uncertain. And I think that, that is very true as you think about investing, and I think it's also true when you think about building teams. So over time, I guess I've come to value consistency a lot more, both in investing, of course, but also in leadership where I think what people are looking for is clarity and honesty and really steadiness. When I think about investing, I think you need those same things, right, that repeatable framework we're talking about. So if I had to distill it, I think it would be not really from a lesson perspective, not really confusing a bunch of activity with productivity. I think some of the best decisions that I've made were when I didn't force a deal, and then I push it too hard at investment committee when I could sense that it wasn't going to be one that was going to get there or on the other end, when I challenged assumptions, right, the status quo or at least when the moments I had some time to kind of ask questions and slow the movement in the room. I think that also applies when you think about leadership, right? For me, I don't think you have to be the loudest person in the room to be the clearest person. And I also don't think you need to be perfect in forecasting and predicting what's going to happen in the future to be a great leader. I think you need to really build an amazing team. And on investing, I think you need to build an amazing investment process.

Christina McNamara   00:52:53

I really like that, the clarity, honesty and stability. That's fantastic insight and advice to share with our listeners and we really appreciate you sharing everything and your time with us today. Thank you so much. Also thank you, Alona, for joining us on this episode of Private Markets 360 where we had the opportunity to learn from Alona Gornick's wealth of experience in private credit. Alona's journey from investment banking to pioneering deal origination at Churchill and now guiding wealth investors through a rapidly changing landscape highlights the importance of adaptability, discipline and transparency in today's market. We explored how Churchill's sponsor driven approach, its integration with Nuveen's ecosystem and its commitment to rigorous diligence and investor education set it apart in the world of private credit. Alona's insights on risk management, deal structure and the evolving needs of wealth investors offer valuable guidance for anyone navigating private markets. We hope this conversation has given you practical tools and confidence to make informed decisions in private credit and beyond.

Christina McNamara   00:54:15

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