Podcast Summary: Educational Alpha – S3: Conversation with Brett Hickey, CEO and Founder, Star Mountain Capital
Date: December 10, 2025
Host: Bill Kelly, CAIA Association
Guest: Brett Hickey, CEO and Founder, Star Mountain Capital
Main Theme: Exploring the nuances of lower middle market private credit, investment discipline, and the operational strategies underpinning Star Mountain’s success in a rapidly evolving sector.
Episode Overview
This episode delves into the evolution and distinct opportunities within the lower middle market segment of private credit. Bill Kelly interviews Brett Hickey, who shares personal and professional insights, discusses how the landscape of private credit has changed post-GFC, and outlines Star Mountain’s differentiation strategies—highlighting operational expertise, alignment of interests, and responsible growth as central themes.
Key Discussion Points & Insights
Brett Hickey’s Background and Formative Influences
[02:42 – 07:57]
- Entrepreneurship and Work Ethic:
- Early years spent speed skating (Canadian gold medalist and record holder), working on oil drilling rigs to pay for college, and growing up in a tight-knit community after losing his mother at age 6.
- Lessons: Value of hard work, community support, and teamwork.
“The correlation between speed skating, the oil rigs and Star Mountain is not a crow flies, but ... work ethic and effort. And I think that’s been a key pillar of Star Mountain as a firm.” (Brett Hickey, 03:10)
- Finance Foundation:
- After McGill University, joined Salomon Smith Barney (Citigroup), gaining exposure to fund structures, bank divisions, and deal evaluations.
- Witnessed firsthand why banks shifted away from the lower middle market—high labor, low fee opportunity.
Origins & Evolution of Private Credit
[07:57 – 14:59]
- Post-GFC Shift:
- Banks retreated from lending to smaller businesses, partly due to regulatory pressure and the TARP program.
- Private credit filled the void, but Brett stresses the core differences in labor intensity, risk, and opportunity between large market and lower middle market deals.
- Industry Growth Data:
- Industry is less than two decades old, marked by fast growth (~$2 trillion AUM among top 5 managers, up 30% YoY).
- Concentration risk emerging at the top end; Star Mountain focuses on less crowded, labor-intensive segments.
“What we observed ... is a lot of the regulators ... see some loans with a higher interest rate. What’s your knee jerk reaction ... that’s riskier ... In the lower middle market it really does matter—the labor and resources required.” (Brett Hickey, 10:18)
Underwriting Approach: Entrepreneurs vs. Credits
[14:59 – 27:08]
- Underwriting People:
- Fundamental difference: Top funds underwrite credits; Star Mountain underwrites entrepreneurs and executives.
- McKinsey study: CEO excellence is the primary driver of business success (~60% value attribution).
“We do underwrite ... the executives and business owners ... 100% we do at Star Mountain.” (15:52)
- Importance of having business owners with skin in the game.
- Cautions against complacency, correlation in downturns, and false sense of diversification.
- Alignment of Interests:
- Star Mountain requires significant personal capital investment from partners and senior staff.
- Reluctance to invest in unprofitable startups; focus on proven, cash-flow positive businesses.
Star Mountain Capital’s “Moat” and Differentiators
[27:08 – 37:44]
- Multiple Moats:
- Largest dedicated lower middle market team: 130 full-time staff, 40 operating partners; significant operational involvement.
- Unique senior advisor network with wide-ranging experiences.
- Alignment and incentives: All key investment team members must invest personal capital; compensation based on successful exits, not deal closings.
“Our team gets paid for loans to successfully be monetized at the end and then having that real operational expertise.” (Brett Hickey, 32:07)
- Active “shoe leather” approach—localized, persistent sourcing.
- AI Integration:
- Strategic use of AI in both diligence and portfolio management.
- Operational Alpha:
- Ability and experience to combine and grow businesses into larger entities, increasing valuation and reducing risk.
Market Dynamics: Credit Spreads and Risks
[37:44 – 42:26]
- Spread Environment:
- Lower middle market has historically had materially lower default rates and higher recovery rates than larger credit markets.
- Lack of rampant capital inflows and demographic trends (aging business owners) maintain spread and deal discipline.
“Over the last roughly 30 years, the lower middle market segment has had a materially lower default rate than the larger segment ... roughly a 75% lower default rate.” (Brett Hickey, 38:31)
Growth, Discipline, and the Future
[42:26 – 49:10]
- Disciplined Growth:
- Star Mountain avoids chasing AUM and fee volume—prefers measured growth and high alignment with client outcomes.
- “Independence is a very powerful thing when you can afford to have it.” (Bill Kelly, 47:34)
- Long-Term Vision:
- Goal to become the best lower middle market asset management firm, delivering low correlation, high-alpha returns.
- Emphasis placed on culture, transparency, and continual value addition to both investors and the wider economy.
“We want to be known for ... a high quality, high integrity team that continues to protect capital and deliver good results ... and ultimately adding real value to society and the economy.” (Brett Hickey, 44:59)
Notable Quotes & Memorable Moments
-
On Entrepreneurship and Values:
“People just worked as a team. In Wall Street that’s not the norm … At Star Mountain we really focus on having that community, having that culture of working together to create that value.”
– Brett Hickey [06:30] -
On Industry Structure:
“It [the private credit industry] is a bit like a gangly teenager because it’s grown so very rapidly and it doesn’t quite know how to use ... its mistakes are made.”
– Bill Kelly [08:18] -
On Executive Underwriting:
“Does Star Mountain underwrite the executives and business owners that we’re investing in? 100% we do…”
– Brett Hickey [15:53] -
On Diversification Risks:
“In a downturn, things are often much more correlated than they seem.”
– Jim Boyle (quoted by Brett Hickey) [28:45] -
On Star Mountain’s Moat:
“We have people local in over 20 cities across the country and everybody is alive. All of our team shares in the carried interest and profits.”
– Brett Hickey [33:40] -
On Growth Discipline:
“We’ve grown at a good rate, but we’ve grown in a prudent manner. And I think that’s an important aspect.”
– Brett Hickey [45:00]
Important Segment Timestamps
- Brett’s Journey & Upbringing: 02:42 – 07:57
- Evolution & Origins of Private Credit: 07:57 – 14:59
- Difference Between Big and Small Market Players: 14:59 – 27:08
- Star Mountain’s Moat & Strategy: 27:08 – 37:44
- Market Dynamics, Default/Recovery Rates: 37:44 – 42:26
- Managing Growth and Forward Outlook: 42:26 – 49:10
Summary in the Guest’s Own Words
“Ultimately if you can attract better business owners and add better value, you will ultimately drive better financial outcome for investors as well. To me that’s exciting and why we've actually doubled down on whether it’s AI or whatever else we’re doing…staying in the lower middle market where we have distinctive competencies…”
– Brett Hickey [36:30]
For listeners interested in private credit, lower middle market differentiation, operational investing, and the convergence of entrepreneurial values with institutional discipline, this episode serves as a masterclass in strategy and leadership.