Jocelyn Lewis

Hello, and welcome back to Pivot Markets 360, S&P Global's podcast dedicated to enlightening and educating our listeners about the world of private markets from vast vantage points. Your Private Markets 360 co-hosts both sit within Market Intelligence. I'll start off with introductions. I'm Jocelyn Lewis, Head of Private Debt Commercial Strategy.

Chris Sparenberg

And I'm Jocelyn's co-host, Chris Sparenberg, Head of Private Markets Commercial Strategy. I'm a super fan of our corner of the investment industry. We're thrilled to bring our listeners exciting guests every month for discussions about industry trends and other topics of interest here on the podcast.

Jocelyn Lewis

You sure are, Chris. And if you're interested in regular private markets content, hit subscribe and tune in. Ready to introduce our guest, Chris?

Chris Sparenberg

Let's do it.

Jocelyn Lewis

Today's guest is a Senior Principal and the Chief Financial Officer and Chief Operating Officer of Eagle Point Credit Management, where he oversees all facets of Eagle Point's operations, including oversight of third-party service providers.

Prior to joining Eagle Point, he was an Executive Director at JPMorgan's Alternative Investment Services, where his responsibilities spanned managing operations of private equity and hedge fund administration. And prior to that, he was the CFO of Sailfish Capital and the Financial Controller of Amaranth Advisors. Welcome, Ken Onorio, to Private Market 360. Ken, thank you for joining us.

Kenneth Onorio

Thank you for having me. A pleasure to be here, and look forward to our conversation.

Chris Sparenberg

Ken, we're thrilled to have you on. Could you start by giving us an overview of Eagle Point and specifically, why the business has made the shift into private markets via private credit lending.

Kenneth Onorio

Sure. Eagle Point was founded in 2012. We're based in Greenwich, Connecticut. We have approximately $9 billion in assets under management. That $9 billion is roughly split 50% across our CLO strategies and the other 50% across private credit. I think for the first 7 years of our existence, we were exclusively CLO focused.

And in 2019, we launched our defensive income strategy, which today, we believe is one of the largest nonbank lenders in the market to credit funds. The reason for the launch of that platform helped diversify Eagle Point by offering solutions to existing or potential investors. The type of funds we provide financing to include BDCs, closed-end funds, private funds and commercial mortgage REITs. We typically do private credit transactions in the $50 million to $200 million range.

Jocelyn Lewis

Could you tell us a little bit about your diligence process for fund finance, and how deep into the underlying portfolio investments you're looking?

Kenneth Onorio

Sure. So we perform extensive due diligence, and we do this from both an operational perspective as well as an investment perspective. So we do, do a deep dive into the companies themselves and their investments and how they're deploying capital and their cash flows. We build in what we believe to be very protective covenants to protect against credit deterioration.

And in the diligence process itself, we to assess the core soundness of the business. Roughly, that could be, let's call it, cash flow analysis and whether the cash flow is positive. Are there risks to impede cash flow, either at the company level, the industry level or at the macro level? Is there enough cash flow over time to sustain operations? Another area where we assess the company is our comfort with management.

Do they have enough skin in the game? Do they have a fiduciary mindset? And then are there structural controls in place? We conduct extensive due diligence outside of the investment professionals and the portfolio managers and the top-level management and talk to the controller or talk to the accounts payable person. It's extensive due diligence, and it does span the investment/company level as well as operational.

Chris Sparenberg

That sounds quite extensive. But of course, when you're deploying capital, it absolutely has to be. When you're thinking about the vast areas where third parties can provide value, can you talk us through what you think some of the key areas that you find the most benefit from working with some of these third-party service providers?

Kenneth Onorio

The first thing I would mention is scale. If we have an independent third-party administrator, as we add assets, we're really only incurring additional cost on a basis point level for those assets that we are adding to our portfolio. We do not have to add other ancillary-type expenses to support that new capital. So scale is key.

Another area would be expertise, for example, valuation agents. A lot of third-party finance and some of the other products that we service here at Eagle Point are Level 3. They are complex, and they do require a certain level of expertise. And it's nice to have that outsourced relationship with someone who has the expertise to value those assets or to give us comfort on how we're valuing assets ourselves. Additionally, a consultative support.

This mostly comes from our auditors and our tax firm. Obviously, they need to be the auditor of our books and records and to make sure that we're in compliance from a tax perspective. But if we're contemplating a new transaction that may be new to Eagle Point or maybe somewhat complex, we want to have those conversations upfront for our auditors and tax compliance firms to ensure that as we're setting this up we're thinking about all the things that we should be thinking about and doing it the right way.

We look at third-party service providers as an extension of our team. They are not an organization that we throw something over the fence to and hope they get it right or take it verbatim. There are numerous conversations, numerous engagements all the time with our third-party service providers because we do view them as an extension of our team.

Jocelyn Lewis

That's really nice and also very important to hear because near and dear to both Chris and I, from where we sit within Market Intelligence, we provide a lot of software and data to firms such as Eagle Point, so we're always speaking internally what clients' expectations are and also working hand in hand with the different groups like client management, specifically, to really understand what it is that clients are asking for and where we can kind of lean in to, so we certainly appreciate that the fit, the culture makes a lot of sense.

One of the things that I was curious about is software providers or data providers. How do you think about that? Because we, for example, provide software that your teams use on and rely on, but it's not a lot of the times the people really that are involved so much, where what you really need is that reliable software. Are you really dependent on that for the scale?

Kenneth Onorio

Yes. To a certain extent, we are. It's important, too, the information that is being provided by software is reliable. I would say we utilize in tech to value our CLOs. We're getting core cash flows, but we would want to apply market assumptions or our own assumptions to those cash flows to determine evaluation. So we have to be comfortable with the core information that's coming in and there needs to be flexibility to apply certain assumptions to that information to ensure that, that output is correct and market-based.

Jocelyn Lewis

Are you looking at different data sets or different types of information to complement the information that you're getting from all of your investments and assess the overall market as well?

Kenneth Onorio

We do subscribe to a lot of software providers as well as information subscriptions, market data, market intelligence, and we do have the ability to collect that information and have it available all in one place. We're always optimizing how we do it, how we're aggregating that or how we're disseminating it through the organization, but to have that information available and in a format that's easy to digest. So we're constantly evolving that aspect of our organization, so it is evolving. We do, do a good deal of it today, and it could always be further optimized and further developed.

Jocelyn Lewis

We know that culture in general is very important to you, and so could you talk a bit about the different cultural experiences that you've had throughout your career and provide some insights on what are the key ingredients for an ideal culture?

Kenneth Onorio

I would say that first 10 to 12 years of my experience, I refer to that as the boot camp to the financial services industry. At Coopers & Lybrand, you learn how to run engagements, how to interact with clients, how to bring up touchy subjects if you're auditing something and it doesn't feel right. You can also get to manage teams. So those are all basic skills.

And I believe in my experience, I got to learn those the first 3 years out of school. Then at JPMorgan, in the investment banking world, you get to learn structural controls, right? So now you've got the basics down, now you want to be able to understand and build structure because if you're in my seat, where I am today, in order to scale operations and scale it under control, you need that structure.

So I learned how to identify, how to build and how to optimize structure at JPMorgan. I was constantly surrounded by great people, individuals I worked with, some individuals that mentored me along my career and all very positive. And there were certain instances where there could be bureaucracy that enters into the fold, and sometimes that bureaucracy overwhelms the structure aspect of what needs to be done.

Fast forwarding to Eagle Point where I am today, the first thing I would do is give credit to Eagle Point's founding partner, Tom Majewski, because culture does start at the top and flows down. And if I'm in a position where I don't feel empowered over my team, over my operating platform, it would be difficult for me to empower others. So it always starts from the top down.

What I would recommend to anyone looking to switch jobs or seek other opportunities is to make sure you click with the decision-maker that's going to have the most input over your career and ability to do your job because that click with Tom and I was there right from the get-go when we first met.

And now that I'm in power, the things that I looked forward to doing and wanted to do, because when you come to a smaller organization, you're a little bit more nimble and flexible on what you could accomplish. And if you have that empowerment, you could get a lot more done. So I felt day 1 in the organization, I was empowered. And what does that empowerment entail? The first thing is on staffing. It's very important as a senior manager that whatever staff I bring into the organization is that they view me as a key decision-maker on their career.

There's not someone in hiding in a room somewhere that could veto certain aspects of their development. And I would say empowerment is needed over how much they get paid, so compensation, promotion, who gets promoted, and new opportunities. We have a saying here at Eagle Point that we promote from within. Promotions are probably the most cost-effective way to motivate people.

Certainly, if someone is getting promoted, they're usually getting an increase in pay, but also an increase in responsibility. But by promoting someone, you're telling them, "Hey, we have faith in you, and we do see your continued trajectory at our firm." One thing I do as a manager is when we make those decisions and give those individuals those opportunities, we stay vested in their success.

So a lot of times, it's helping build their confidence in the new role, it's giving them real-time feedback when you do something well, when they do something not so well, and continuously help them to improve where they get to a point where they're settled in that role and they're usually successful and recognized across the organization as the expert in whatever that role may be.

If you want to bake a really good cake, you need the right ingredients, so recruiting the right people in is extremely helpful in the culture, in building the culture and maintaining the culture here at Eagle Point. We hire attitude and teach aptitude. And what that entails is getting the right person in who has the right values, who employs teamwork, open to challenges, open to helping their colleagues.

Those are the things that we can't teach people. It's either at the time when they're joining Eagle Point. So a lot of times, we'd have a stronger resume but maybe not so sold on the personality of the individual with a lesser resume from an experience or schooling perspective, but someone who you could tell is really hungry and is going to do a good job because we feel that those individuals have a lot more potential in the organization.

Chris Sparenberg

Hiring for attitude is one of the unsung superpowers in team building, so I could not agree with you more.

Jocelyn Lewis

And I think it's important to lead by example, too, like you mentioned, it starts at the top and trickles down. It's also being supportive of whom you're putting forward for promotions, too, and the sticking by and mentoring. All of that, I think, it just pays such a crucial role to really have people feel that empowerment. And it creates that culture that's really built on trust, which at the end of the day really makes for a great place to work.

Kenneth Onorio

Yes. My first role in the asset management industry, the first thing, I was a controller at the time, the CFO told me was this business is all about trust. The numbers we're putting out to investors, the investors need to trust them. When your staff need to trust you, you need to trust them. It's all about trust.

Jocelyn Lewis

Yes, for sure. Well, thank you, Ken. This has really been terrific. Really enjoyed the conversation. We really appreciate it.

Kenneth Onorio

Thank you so much for the opportunity.

Jocelyn Lewis

I think it's great for our listeners to really hear about your approach to building a best-in-class operations team while scaling Eagle Point's platform substantially across several private credit strategies, and we really appreciate your perspective and commitment on developing and empowering inclusive and really high-performing culture.

Chris Sparenberg

Thank you, Ken. Thank you again to our wonderful guest for a great chat today. We really appreciate everyone listening in. If you're looking for more private markets content, hit subscribe to catch future episodes and listen to our earlier episodes wherever you listen to podcasts. Cheers, everyone.

Jocelyn Lewis

Thank you so much. You can also subscribe to our monthly Private Markets 360 newsletter. The link is in each episode bio or connect with us on LinkedIn. Have a great day.