New Mountain Finance Corporation
TWST: Let's begin with a brief overview of the history and evolution of New Mountain Finance Corporation.
Mr. Klinsky: New Mountain Capital initiated its debt investments back in 2008. New Mountain Capital is primarily a private equity firm that manages about $9 billion of committed capital. We specialize in acyclical, economically defensive industries - industry sectors that do well whether the economy is strong or weak.
As private equity investors, we traditionally acquire majority equity control of a company and then direct or manage the business. We've been very focused on risk control and have never had a bankruptcy or missed an interest payment at any of our private equity portfolio companies since the firm began. Then in 2008 after Lehman Brothers collapsed, we saw that the debt issues of even some of the very safest, high-quality companies we had studied were selling at very low prices because of the financial crisis.
Debt is inherently less risky than the equity in the same company because it is senior to the equity, and we had already extensively researched many of these companies and industries through our private equity work. So in 2008 we took $300 million of our private equity fund and started using it to buy debt, and we've invested in close to $1 billion of debt issues overall since then, both through purchases and through direct loans. We've named the debt effort "New Mountain Finance Corporation" and took it public on the New York Stock Exchange in May of this year.
New Mountain Finance (NMFC) is organized as a business development corporation, BDC, essentially as a closed-end debt fund that we manage on behalf of the public. NMFC owns debt in a diversified portfolio of companies - and to avoid conflicts, this is not debt of any private equity company that New Mountain itself owns, but rather debt in other high-quality buyouts and companies. NMFC collects the interest on that debt and pays it straight out to the NMFC public shareholders each quarter as a cash dividend. The goal is a dividend of around 10% or so in cash per year. So a public shareholder of New Mountain Finance is getting the cash interest each year on all that debt that NMFC owns, and all of New Mountain's research strength and knowledge to select and manage the debt portfolio, and that's the genesis of the company.
TWST: From your perspective, what is the outlook for venture capital and private equities right now?