Key Takeaways
- • Churchill Asset Management CEO Ken Kencel argues that private credit's recent redemption pressures reflect investors adjusting to an illiquid asset class, not a flaw in private credit itself.
- • Kencel says retail should be a minority of a manager's business, suggesting roughly 15 to 25 percent, and warns that an 80 percent retail base makes private credit difficult to manage because of constant quarterly redemptions.
- • Churchill's position as both lender and limited partner in hundreds of private equity funds gives it market intelligence on sponsor expertise and portfolio support.
- • Kencel challenges the assumption that larger private-credit deals are safer, citing higher leverage and weaker lender protections in some of the biggest transactions.
- • Kencel contends that AI will commoditize information, making trust and long-standing relationships more important differentiators.
Summary
In a conversation with Institutional Investor editor Julie Segal, Ken Kencel, president and CEO of private capital manager Churchill Asset Management, challenged several widely accepted assumptions about private credit. He argued that high headline returns do not necessarily reflect the quality of a manager or fund, and that investors should look beyond the track record. Using the phrase "the sediment at the bottom of the barrel," he described how weak loans can remain hidden for years while returns look attractive, until the portfolio's true condition emerges.
On liquidity, Kencel said recent redemption pressures say less about private credit itself than about investors adjusting to the realities of an illiquid asset class. He rejected the characterization of private credit as "semi-liquid," stating that it is fundamentally illiquid and that products should reflect that. He said retail investors should represent only a small share of a manager's business, "maybe 15 to 25 percent," and that a base of 80 percent retail makes it very difficult to manage a private credit business dominated by quarterly redemptions and flows.
Kencel also highlighted Churchill's position as both a lender and a limited partner in hundreds of private equity funds. According to the interview, this gives the firm insight into sponsors' industry expertise and their ability to fix problems and support portfolio companies, supported by a separate team that evaluates fund performance. This vantage point also informs where Kencel sees stress emerging. He challenged the view that bigger deals are safer, noting that some of the largest private-credit transactions have been underwritten with higher leverage and fewer lender protections, risks that may not be visible in strong markets. He also expressed caution about the smallest segment of the market, where companies with $5 million to $15 million in earnings are often less diversified and more vulnerable in downturns.
Finally, Kencel argued that technology and scale have not diminished the importance of relationships and that they matter more than ever. "AI in many respects is going to make information almost commoditized," he said, adding that trust and long-standing partnerships become the differentiators when any fact can be retrieved instantly.
On liquidity, Kencel said recent redemption pressures say less about private credit itself than about investors adjusting to the realities of an illiquid asset class. He rejected the characterization of private credit as "semi-liquid," stating that it is fundamentally illiquid and that products should reflect that. He said retail investors should represent only a small share of a manager's business, "maybe 15 to 25 percent," and that a base of 80 percent retail makes it very difficult to manage a private credit business dominated by quarterly redemptions and flows.
Kencel also highlighted Churchill's position as both a lender and a limited partner in hundreds of private equity funds. According to the interview, this gives the firm insight into sponsors' industry expertise and their ability to fix problems and support portfolio companies, supported by a separate team that evaluates fund performance. This vantage point also informs where Kencel sees stress emerging. He challenged the view that bigger deals are safer, noting that some of the largest private-credit transactions have been underwritten with higher leverage and fewer lender protections, risks that may not be visible in strong markets. He also expressed caution about the smallest segment of the market, where companies with $5 million to $15 million in earnings are often less diversified and more vulnerable in downturns.
Finally, Kencel argued that technology and scale have not diminished the importance of relationships and that they matter more than ever. "AI in many respects is going to make information almost commoditized," he said, adding that trust and long-standing partnerships become the differentiators when any fact can be retrieved instantly.
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