E432: $24 Billion Investor on Private Credit, the Psychology of Winning & Fear of Failure

David Weisburd (0:00)

Monroe Capital has grown to $24 billion firm, deploying $10 billion a year. But when you started in 2001, it was a completely different market. What made you want to enter private credit?

Theodore Koenig (0:12)

Excellent question. So my background is accounting and finance and law. I practiced law for about 14 years. I did M&A and bank financing law, mostly for private equity transactions. What I noticed is that throughout my career, we worked with banks on transactions.

Banks were relatively inflexible in terms of their financing because they had regulations and they had certain ways they had to do deals. The only two non-banks that existed at that time were GE Capital and Heller Financial. And they weren't regulated, so they could structure deals in all kinds of more creative ways and customize transactions for companies. They were doing larger deals.

There was nobody really doing lower middle market or smaller deals in a non-bank format. So I thought that as opposed to working 24-7 and building hours as a lawyer, that I could take what I learned as a lawyer, take what I learned representing PE funds and banks and apply that to transactional finance and do it the way GE Capital and Heller Financial were doing it in a way that was more user-friendly for smaller companies, more Main Street America. I started Monroe in 2001, and I managed to recruit three guys that were excellent bankers. One was a credit guy, one was an origination person, one was an underwriter that joined me in this new venture. They were each making $100,000 a year, and they had families, and they were a little reticent to do it, but I convinced them that we were going to be successful, and this was going to be the new form of finances as the future unfolded.

David Weisburd (1:58)

I'm so curious because not that much innovation is done in the financial markets. What made you so confident that you're on the cusp of a new asset class?

Theodore Koenig (2:09)

I didn't. I just was tired and burnt out being a lawyer, and I wanted to build something. I'm an entrepreneur at heart, and I'm a business builder. And I thought that if I could get a clean shot at building a banking product, a finance product, the good news is banking has been around forever. Transaction finance was being done by banks.

And I was confident that if I could come in and do the same type of financing but with less rules and providing more creativity, that we could build a business. Now, at the end of the day, I didn't know how big of a business we could build. I thought we could build a business. We could put a couple hundred million dollars, three, four hundred million dollars to work, and it would be a success. So what happened is that I got into it, and I realized that there was a big, much bigger market here than I had anticipated, and that I had to realign my thinking into how to build a business as opposed to just do deals.

David Weisburd (3:12)

And your original goal was three, four hundred million today, as I mentioned, you have 24 billion deployed. What gets you up every day to keep on building the business bigger and bigger?

Theodore Koenig (3:23)

Another good question.

I think part of that is being an entrepreneur, and part of that is being afraid to fail. Every day I get up and I think about how we can grow the business, what we can do, what new areas we can get into.

I was always a competitive ball player. I was a basketball guy. If I didn't do this, my first goal was to be a professional basketball player. That didn't quite work out the way I wanted, so I had to default into my next goal, which was accounting and finance. So it's the competitive spirit. It's about winning. It's not about dollars. It's not about numbers. I keep telling people that the way to be successful in whatever career that you want to pursue is not by being satisfied. It's always by moving the goalposts out. Once you have an achievement, don't rest on your achievement. Don't rest on your laurels. Don't read the newspaper clippings. One of my favorite analogies is I'm a sports guy. I'm a big basketball guy. Michael Jordan was a Chicago guy. He played basketball in Chicago. Probably the greatest athlete, the greatest basketball player ever.

He never read the newspapers. Every week, every day, people would write all these great superlatives about him. They said he was the greatest. He did this. He did that. And he just went out every game and won. And he went out and he worked hard and he practiced hard and he performed. And that's what I tell my people. That's what I tell my mentees when I speak to a lot of trade organizations. I say don't focus on your accomplishments. Focus on the work that you've done. Focus on the effort you've put in to get there and then to keep moving your goals. Because if you keep moving your goals, you'll continue to strive and achieve. If you don't do that, you're never going to get to the next layer. You're never going to get to the next level of achievement.