‘We’re looking at everything’ because we’re in a big transitional period: Churchill Asset Management

Randy Schwimmer, Head of Origination & Capital Markets at Churchill Asset Management, joins The Final Round panel to break down his sentiments on the markets and where investors should be looking as more states continue to progress in their reopening.

Video Transcript

MYLES UDLAND: And Randy, I want to start with a comment you have about the opportunity time that is facing your industry, at least as far as you guys see it right now, which is that this isn't-- the stock market might have said, oh, this is a quick snapback. And maybe some people now are having a FOMO feeling about how prices have changed. In the credit market, where you guys are sitting, you see this as a several-year process here, where there's going to be a lot of opportunity. Maybe walk us through how you guys are seeing that.

RANDY SCHWIMMER: Sure. Thanks, Myles, for having me back. It's been a while. And it's great to be back.

I think the difference between what we're doing and the liquid markets is that it's not a timing issue for us. We have been investing in the same business with Churchill, the same team for almost 15 years, through the last downturn. We're investing through this downturn.

Our view is that we focus on fundamentals, not technicals. It's not where the Dow is. It's not where interest rates are. We've been predicting some sort of downturn and expecting it for a while now. We had zero idea that this was going to be the vehicle that was going to get us there.

But the way that we operate is we focus on companies that are primarily owned by private equity businesses. And so that's-- buying in of itself is a long-term hold proposition. So it's not like, hey, let's go into business just for a short period of time and then exit. We're partners. We're long-term partners for them.

The other thing is in our investing strategy, we've stayed away from cyclicals. I think I mentioned that last fall when I was with you, staying away from the retail companies, high-end consumer, travel, leisure-- as it turns out, all the businesses that are super sensitive to what's going on in COVID. So our portfolio reflects that health.

And frankly, the investment strategy we have going forward is continuing to focus on those kinds of businesses.

MYLES UDLAND: And Randy, you mentioned that you guys are working with different kinds of companies, and with a different kind of investor than, again, what we're usually talking about here with the equity market. As it relates to how PE has maybe changed their process, or what those lines of communication have been like, where do things stand, I guess in the three, four months into this, with kind of how that side of the financial industry is operating right now?

RANDY SCHWIMMER: Yeah, it's a great question, Myles. And actually, it dovetails to the conversation y'all were just having before the break about travel. So we're just starting to hear now, three months into this, that our private equity clients are beginning to travel. They're beginning to get on planes. They're beginning to go see their clients and potential investments person-to-person, kicking the tires, visiting the management teams.

Up till now, it's been virtual meetings-- a lot of Skyping, a lot of Zoom, so forth. But you really have to meet these management teams in person. You've got to go see the plants and the facilities, because you don't want to be committing $100, $200 million of your investors' funds without actually saying, hey, yeah, we met these people and shook their hands. So that's beginning to open up now.

MYLES UDLAND: And when it comes to opportunities that you guys are seeing and that some other folks are seeing out there, you mentioned that you had been staying away from the cyclical sectors of the economy before this. Is that something that's more interesting at this point? I mean, are you kind of changing maybe your opportunity set, given what has kind of happened in the market and what the economy might look like over the next decade?

RANDY SCHWIMMER: We're certainly looking at everything, because we're in such a period of transition right now. There were some companies that we thought would probably not have the kind of growth that they did. And yet when people are home and they're not traveling, they're doing other things.

So for example, ordering from mail-order catalogs. And we have a business that's kind of close to that on the catalog side. That business has really cleaned up over the last three months.

And there are other companies that-- like fitness centers, for example, that we historically have seen do well through recession, because if you're out of work, you probably still want to spend your $10, $20 a month going to your local gym and just keep in shape in between job interviews. But those businesses are shut down right now. And so in a little bit of a topsy-turvy world that we're in, there's no specific thesis that we're wedded to.

But in general, we're focused on businesses that we think as they are going to be emerging over the next few months are going to be market leaders. The structures, that because we're senior-secured and on top of the capital structure, that whatever happens over the next few months, that we're safe in our investment strategy.

MYLES UDLAND: And Randy, real quick before I let you go, I just want to ask about how the Fed's drastic actions, and just within the last half hour announcing a broadening of that Main Street credit facility, how that has changed in the markets you guys are playing in, or just changed, I guess, the sentiment that credit investors have towards the market?

RANDY SCHWIMMER: Well, I think anything that the Fed does to support medium-sized businesses, and particularly the businesses that are owned by private equity firms-- and there are almost 10,000 of them out there. And these are high-growth companies. These are businesses that are growing and hiring people. And obviously, given all that's going on in the labor market, hiring is important.

Anything that the Fed does to support that effort is really welcomed. There's been a lot of effort there. We focused on the Main Street program. It's evolved over time, Myles.

And so I think the more that it accommodates private-equity owned companies, I think the better for everyone involved.