We knew that in terms of our sponsor, we would need very strong and trusted relationships at the very top of the house. Denis Nayden, who ran GE Capital for a number of years, is a very senior partner at Oak Hill Capital. Steven Gruber, a founding partner at the firm, Doug Kaden and John Monsky led us to a series of discussions with AIG.

They are the right core senior team from Oak Hill Capital to have on our board. They not only have the experience, but they have the strategy and the vision to build a significant platform.
From the AIG perspective, the team is led by Brian Schreiber, who is the company’s deputy chief investment officer. We also have two very strong business line people: Ted Etlinger, head of leveraged capital, and Lorri White, co-head of corporate private placements. What we found with the AIG team was they shared a common view of the market opportunity and even more importantly, they had significant experience in investing in middle-market leveraged loans originated from sponsors.

ABL Advisor:  Tell us about the launch team.

Owens:  When it came to building the launch team, we realized that the team members needed to have deep equity sponsor relationships and they needed to possess established track records across the entire product spectrum … not just first lien. We had strict criteria and as I look at each of the team members, I’m certain that we have met all of our objectives.

We have Steve Warden in healthcare who has shown the ability to drive a lead agent business at CIT through the cycles. In the energy sector, we recruited Ren Plastina who was a successful managing director in the energy and power group at BNP. We have worked through what we believe will be a very effective energy supply chain strategy in which we combine both the traditional project and structured finance elements of energy finance along with a middle-market sponsor strategy.

We were also able to pick up Inoki Suarez from GE Antares. Inoki is a high performing originations leader with a demonstrated track record in the general sponsor arena. Two other key players are Arcinée Hermiston who is our chief risk officer and Michael Girando to head our capital markets. Arcinée, previously from BNP Paribas, is not only steeped in credit and middle-market leveraged finance, she also has a great track record from a regulatory and compliance reporting perspective. In the long term, we thought it wise to be prepared for increasing regulation. Michael brings experience from Citibank’s credit opportunities fund along with a unique perspective in terms of junior capital.

At Varagon, we have a blend on not only strong institutional experience, but very broad product experience. This combination will be very important for us since we are doing everything from first lien to mezzanine.

I also want to mention another critical player, Brett Shapiro who joins us from the Oak Hill Capital team. We recognized that we needed to be as strong on the business and investor development side as we are on the asset generation side. Brett is going to be working with the Varagon board in developing our investor base.

ABL Advisor:  As you look out at the commercial finance marketplace, what is your sense of where we are and where we are headed in the near term?

Owens:  I think the best way to think about the current environment is we are in a period that we really never have experienced before. We have an economy that seems to be doing better, but isn’t hitting on all cylinders. That is combined with a financial market that is red hot. I think for the moment, we appear to be at the peak in terms of structure and price and we’re in a very aggressive market. You have to be careful as a new business in terms of how you start out and what your risk profile and appetite is going to be. As a new business, we will be selective and I think the size and strength of our sponsors are factors that will allow us to enter the market and at the same time, not be marginalized as a new player that is trying to work around the edges.

ABL Advisor:  In closing is there anything you would like our readers to know about Varagon Capital Partners?

Owens:   I’d like to say a bit more about the investor side of the business. Over time, the Fed and the OCC have been very specific, and rightfully so, that the risk and return profile should match the type of funding an institution has. As we look at the macro opportunity, we find that through the last several cycles, large institutional investors have not only become knowledgeable of traditional commercial asset classes, but have also come to understand them in greater depth. I think there’s a significant shift happening now, whether it’s insurance companies that are probably at the forefront on investing in these asset classes, to pension funds and family offices in terms of risk mitigation.

Having this shift to large and knowledgeable investors is a plus to the financial system because it allows asset classes with higher risk profiles to be held by long term investors that aren’t looking for quick liquidity at the sign of the first bump. This shift shouldn’t be viewed as a repeat of 2007 in the syndication and CLO markets. Those investors were buying on ratings. In contrast, these investors are quite intelligent and investing in the long term strategic value of commercial finance assets … they aren’t buying securities.

We obviously are always going to have cycles and we don’t know when the next one will be, but I feel good about the fact that companies like AIG not only understand the asset class, but also understand how to earn and optimize their investment over a long period of time.