Churchill's Ken Kencel on Middle Market Resilience

In Brief:

Private credit continues its explosive growth trajectory, but the industry now faces a critical inflection point around competitive positioning and return sustainability. Ken Kencel, President and CEO of Churchill Asset Management, a $57 billion private capital affiliate of Nuveen, offers a contrarian perspective on Bloomberg Talks, arguing that while industry giants chase large-cap deals and infrastructure opportunities, Churchill's middle market focus provides superior insulation from tariff risks and spread compression. Speaking with Bloomberg's Matt Miller and Dani Burger, Kencel reveals that his firm's portfolio—concentrated in US service businesses with minimal international exposure—has become unexpectedly attractive in the tariff era, with less than 10% of holdings materially impacted. As hedge funds like Millennium and 72 launch private credit strategies and established players move upstream into investment-grade lending, Kencel makes the case that true competitive advantages lie in differentiated sourcing, decades-long sponsor relationships, and market segments where few firms can deliver $300-500 million solutions while maintaining a 200-250 basis point advantage over syndicated markets.

Big Picture Drivers:

• New Market Entrants: Hedge funds like Millennium and 72 are launching private credit strategies, bringing tourist capital into an increasingly crowded space

• Tariff Dynamics: Trump administration trade policies are creating differentiation between domestic-focused middle market companies and internationally exposed large-cap firms

• Regulatory Environment: Deregulation efforts are providing tailwinds particularly for mid-market companies with limited compliance infrastructure

• Market Bifurcation: Clear separation emerging between traditional relationship-based lending and opportunistic/distressed credit strategies

Key Themes:

• Relationship Capital Over Tourist Capital: Established players with decades-long sponsor relationships maintain structural advantages over new hedge fund entrants seeking opportunistic returns

• Middle Market Defensive Positioning: Churchill's focus on $10-100 million EBITDA companies—primarily US service businesses—provides natural protection from global trade volatility

• Infrastructure Opportunity Through Sub-Scale Players: Rather than financing data centers directly, Churchill captures the AI infrastructure boom through mid-market suppliers like HVAC buildout and food service companies

• Fee Compression Asymmetry: While large-cap private credit faces spread compression competing with syndicated markets, core middle market lending maintains 200-250 basis point premiums

Key Insights:

• Market Segmentation: Churchill views private credit not as a monolith but as multiple distinct strategies—venture lending, distressed lending, upper/lower middle market, and asset-based lending—each requiring different capabilities and producing different returns.

• Tariff Insulation: Less than 10% of Churchill's portfolio faces meaningful tariff exposure due to concentration in US service businesses with minimal manufacturing and limited international customer bases, turning trade policy into a competitive advantage.

• Indirect AI Exposure: Churchill has deployed approximately $6 billion supporting the data center buildout through mid-market companies providing ancillary services rather than competing for massive infrastructure deals alongside Apollo and Blackstone.

• Spread Dynamics: Core middle market direct lending maintains a 200-250 basis point advantage over syndicated markets, while large-cap private credit managers face compression as they compete directly with traditional BSL markets.

• Limited Competition at Scale: The ability to deliver $300-500 million solutions in the middle market remains concentrated among a relatively small number of established firms, creating natural barriers to entry.

• Investor Preference Shift: Institutional investors increasingly appreciate differentiation within private credit and are explicitly asking Churchill to "stick to its knitting" rather than chase large-cap opportunities or infrastructure deals.

Memorable Quotes:

• "Private credit in our view is all about differentiated sourcing, origination, and ultimately relationships—I think established players that have relationships built over decades are going to continue to enjoy the benefits of those relationships." - Ken Kencel, explaining why Churchill's decades-long sponsor relationships provide structural advantages over new hedge fund entrants

• "When you look at our businesses, the companies we finance exclusively US companies, primarily service businesses that interestingly have very little influence on their business internationally—less than 10% are really impacted at all by tariffs." - Ken Kencel, describing Churchill's defensive positioning against trade policy volatility

• "We have about $6 billion invested in our portfolio, not in the data centers themselves, but in companies that are sub mid-market companies that are supporting data centers." - Ken Kencel, revealing Churchill's indirect approach to capturing AI infrastructure opportunities through HVAC, food service, and other ancillary businesses

• "Core middle market, what we do in traditional private credit has about a 200 to 250 basis point advantage over the syndicated market—I think a big reason for that is that compression of spreads we're seeing in the BSL world." - Ken Kencel, quantifying the spread premium that middle market lending maintains while large-cap private credit faces fee compression

• "Five six years ago investors I don't think fully appreciated all these differentials within private credit—today they like the middle market and they want us to stay there." - Ken Kencel, describing how institutional investor preferences have evolved toward specialized strategies rather than asset gathering

The Wrap:

Churchill's middle market focus represents a deliberate strategic bet that relationship-based lending to domestic service businesses will outperform both opportunistic credit strategies and large-cap deals facing syndicated market competition. While industry giants pursue infrastructure and investment-grade opportunities, Kencel argues that true competitive advantages lie in differentiated sourcing, established sponsor relationships, and market segments where few firms can deliver $300-500 million solutions. The tariff environment has unexpectedly validated this positioning, as Churchill's minimal international exposure becomes attractive to investors concerned about global trade volatility. With $15 trillion of institutional capital represented at Churchill's recent investor meeting, the message from LPs is clear: maintain discipline, avoid mission creep, and exploit the structural advantages of specialized middle market lending rather than chasing asset growth in increasingly commoditized segments.