Scott Kapnick, Founder & CEO of HPS Investment Partners, LLC

Market Context and Economic Outlook

• Scott Kaepernick notes that he has witnessed 8 to 9 economic cycles since joining Goldman Sachs, emphasizing that the precise trajectory of any cycle remains unpredictable.
• Current market conditions are uniquely complex due to the convergence of rising interest rates, Federal Reserve quantitative tightening, the lingering effects of the pandemic, the war in Europe, and China's lockdowns.
• Kaepernick rejects the term "deglobalization," characterizing the current shift as a geopolitical realignment that creates specific capital opportunities for supply chain resiliency and manufacturing adjustments, particularly in Germany.
• The transition to energy security in Europe is expected to drive significant capital deployment, though Kaepernick cautions that the immediate reality involves a rational debate on the necessity of carbon-based energy alongside renewables.
• Private credit is projected to continue its expansion, having grown from several hundred million to $1.5 trillion post-2008, with an anticipated 15% annual growth rate that could double or triple the market size in the foreseeable future.
• Despite market saturation concerns, Kaepernick asserts that the private credit sector does not pose a systemic risk to the financial system, citing strong equity cushions and the high EBITDA performance of underlying operating companies.

Strategic Positioning at HPS

• HPS is strategically positioned to capitalize on market dislocation by offering borrowers certainty and scale, capabilities that traditional syndicated loan markets currently struggle to provide for larger deals.
• The firm targets the non-sponsor market as well as sponsor-backed deals, aiming to execute billion-dollar transactions that deliver growth capital to borrowers.
• HPS investors can deploy capital across a broad risk spectrum with expected returns ranging from 6% to over 15%.
• The firm's growth has been driven by regulatory frameworks post-2008 that increased capital charges for banks on non-investment credit, creating a vacuum that private credit firms like HPS filled.
• Kaepernick advises that during recessionary environments, the primary focus for credit underwriters must be downside protection to ensure borrowers can withstand shrinking profit margins and rising costs of capital.

Leadership and Organizational Culture

• Kaepernick advocates for the "Stockdale Paradox" in leadership, which involves maintaining unwavering faith in eventual success while simultaneously confronting the brutal facts of the current uncertain timeline.
• He argues that leadership is defined by institutional culture, specific actions, and the principles an organization upholds rather than social media presence.
• HPS has implemented significant diversity initiatives, including a $10 million partnership with Howard University to establish a Center for Financial Excellence, providing scholarships, internships, and career pathways in asset management.
• The firm has prioritized employee safety and support for parents, particularly young mothers and fathers, adapting operational models during the pandemic to accommodate these needs.
• Kaepernick challenges the prevailing advice that professionals should change firms every three years, urging young employees with long life expectancies to consider staying longer to reach seniority and maximize career growth.

Future Outlook and Personal Philosophy

• The most critical economic statistic for the next decade is "real" global economic growth that generates economic value added, rather than growth driven solely by government funding.
• Kaepernick identifies success as a balance of building a strong family, giving back to the community, and contributing to making the world a better place.
• He emphasizes the necessity for senior leaders to mentor junior employees, specifically focusing on women and minorities, and to look "down" and laterally within the organization to foster development.
• The network built during early career stages remains vital, as former colleagues frequently provide critical support and opportunities across different firms and sectors decades later.
• The firm's strategy in Germany, established after the fall of the Berlin Wall, serves as a lasting model for applying global best practices to local markets while hiring locally to navigate cultural and financial systems.