In early January, Spouting Rock Asset Management (SRAM) announced it entered into an agreement to merge with Old Hill Partners Inc. (Old Hill). Old Hill is an alternative asset manager focused on providing asset-based lending transactions to small- and medium-sized businesses nationally. Structured as a newly formed subsidiary of Spouting Rock, Spouting Rock Alternative Credit, LLC (SR Alternative Credit), will hold Old Hill’s lending business and serve as the investment advisor to Old Hill’s existing funds and other investment vehicles. This new subsidiary will be operated by former Old Hill employees, including Jeff Haas as President and Peter Faigl as Chief Investment Officer.

The merger comes after a busy 2021 as Spouting Rock continues to expand its platform of solutions. In November 2021, Spouting Rock entered a joint venture with Australia’s Bell Asset Management, acquired a minority stake in Glovista Investments and finalized its majority investment in Penn Capital.

ABL Advisor's publisher, Michael Toglia, met with Andrew Smith, Spouting Rock Asset Management’s Chief Executive, to learn more about this strategic merger and how the two will work in unison to best serve the private debt market.

ABL Advisor: Please tell us about Spouting Rock – the company's history and market focus.

Andrew Smith: Spouting Rock was started by my business partner and colleague Blakely Page, as an extension of his family office. After spending time as an outsourced CIO alternative for insurance companies, he decided that asset management was the way forward for him. As Blakely was moving toward asset management, I was leaving Aberdeen Asset Management. Blakely and I knew one another from a local golf club, and we started to discuss the asset management business after I left Aberdeen. I eventually joined the company in early 2018 and we ultimately decided to build a new type of shared service financial services company. Spouting Rock is split into two different areas. One focuses on asset management, under Spouting Rock Asset Management, and the other side is through the parent company, Spouting Rock Financial Partners.

Our model is slightly different, in the sense that we don’t seek 100 percent ownership of any group we acquire because we want to ensure our interests are aligned. We like to make sure the portfolio managers have equity in the businesses; but the one thing that differentiates us from a number of the other parties out there is that we handle everything else through our shared services model. They're left to manage the money, and we manage everything else from distribution, marketing and client service to all middle office and back office functions. We also utilize outsourced providers to ensure that we don't have to scale up in personnel to cover all the business lines.

ABL Advisor: Old Hill Partners is an alternative asset manager focused on asset-based lending transactions with small- and medium-sized businesses (targeting ABL transactions $10 million to $50 million). Why was the Old Hill business so attractive to Spouting Rock?

Smith: There are a few things that differentiate Old Hill in the market that made it attractive for us. The first is they have floating rate coupons to protect against rising rates. This also allows them to take advantage of the inability for smaller firms to secure proper financing. We try to focus on a number of areas including alternatives, capital preservation and more importantly, capacity-constrained products. The reason we focus on capacity-constrained is we believe when managers are capacity-constrained they typically outperform the benchmarks or alpha.

So why Old Hill? They fit into all of this. They have a phenomenal track record in their lending model. One of our other business partners, John Coyne, often says that many of larger asset management businesses, whether it’s JP Morgan, Vanguard, BlackRock, Schroeder’s, or a few others, do everything for everybody. In other words, they have strategies from A to Z to help everyone. We are not trying to compete against those firms. As John would also say … they're baking the cake and they have all the ingredients to bake the cake. Instead, our focus is to put the icing on the cake. We're not looking for someone’s entire portfolio, just a slice.

ABL Advisor: Is Spouting Rock playing in the private debt market in any other ways, or is this the first foray into this market?

Smith: This is the first foray into this market.

ABL Advisor: Old Hill has done some very interesting deals. For example, it has have completed a transaction based on water rights. Will they continue lending into these types of transactions?

Smith: These are the type of things we like about the Old Hill model because it differentiates them. For example, they have a very good art lending portfolio as well as antiquities, and they also focus on the rail, auto and aviation sectors.

ABL Advisor: How do you view the current lending environment as we enter a rising interest rate and inflationary environment?

Smith: We see opportunities in this environment. As I mentioned, one of the wonderful things about Old Hill is that they have floating rate coupons, which helps protect them against rising rates. Bank lenders, since 2008/2009, have really moved away from these. And it is a much more challenging space for smaller firms to secure proper financing. I think it's an opportunity and I believe they will handle it very well.

ABL Advisor: What was it about the Old Hill team and leadership that impressed you?

Smith: They are all very professional, great people and their track record proves it. Their performance and the alpha that they have brought their clients over a 20-plus year period is exceptional. We met with the entire team, and we truly enjoy them all.