LP-to-Lender Relationship Flywheel
Turn fund relationships into insight, trust, and repeat deal flow
- Difficulty
- Expert
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 97%
The flywheel starts by becoming a limited partner in carefully selected private-equity funds, creating access to performance data, strategy, industry exposure, and the people running each firm. Selective equity co-investments deepen alignment, while advisory-board participation and repeated interactions build institutional knowledge. That intelligence informs which sponsors and deals the lending team should prioritize. When the lender reliably funds transactions, each completed deal adds trust, documentation history, and personal chemistry. Those assets make the next transaction faster and less uncertain, encouraging sponsors to consolidate more financing with the proven partner. More mandates then produce more knowledge and another turn of the flywheel. The mechanism depends on genuine long-term alignment: fund investing must support informed partnership rather than function as a superficial payment for deal access.
Origin
Ken Kencel traced this integrated model from Indosuez Capital to Churchill's relationships with more than 270 private-equity funds.
Core principles
- 01Invest relationships before asking for transactions
- 02Use repeated dealings to accumulate proprietary knowledge
- 03Align interests across fund commitments, equity, and credit
- 04Let reliability compound into preferred-partner status
- 05Convert trust into speed without abandoning discipline
How to run it
- 1
Select strong partners
Identify private-equity firms with proven returns, relevant industry expertise, and trustworthy principals.
Pro tip Study realized results and behavior across difficult periods, not only headline fundraising success.
Watch out Do not confuse a famous brand with a dependable partner.
- 2
Establish LP alignment
Commit capital to selected funds and use the relationship to understand their strategy, portfolio, and decision-makers.
Pro tip Participate on advisory boards when the relationship and governance role justify it.
Watch out Fund commitments should satisfy investment standards independently of lending ambitions.
- 3
Co-invest selectively
Join suitable equity transactions as a minority investor to deepen alignment and gain direct company knowledge.
Pro tip Choose transactions consistent with both the sponsor's strengths and the lender's underwriting expertise.
Watch out Avoid allowing relationship pressure to weaken investment discipline.
- 4
Share intelligence internally
Connect the fund-investment and co-investment teams with the lending team so relationship knowledge informs origination and underwriting.
Pro tip Document sponsor specialties, prior outcomes, and courses of dealing.
Watch out The flywheel breaks when relationship intelligence remains trapped in organizational silos.
- 5
Deliver reliable financing
Provide committed financing when qualified transactions arise and honor commitments consistently.
Pro tip Use previous successful deals and documents as the starting point for new negotiations.
Watch out Trust cannot compensate for a deal that fails underwriting.
- 6
Compound the relationship
Use each completed deal to improve speed, trust, and mutual understanding on the next one.
Pro tip Review the relationship across fund, equity, and credit activities rather than transaction by transaction.
Watch out Do not take a long-standing partner for granted or stop negotiating appropriate protections.
In the wild
A lender invests in a sponsor's fund, joins its advisory board, and co-invests in selected portfolio companies. After financing 30 transactions over many years, both sides begin the next deal with familiar documents, known decision-makers, and confidence that commitments will be honored.
→ The lender becomes a preferred financing partner and receives faster, higher-quality recurring deal flow.
Common mistakes
Treating access as underwriting
A deep sponsor relationship supplies information and trust, but it does not make every proposed borrower creditworthy.
Keeping teams disconnected
LP and co-investment knowledge creates little lending advantage when it is not shared with originators and underwriters.
Assuming trust eliminates negotiation
Long relationships improve speed, but both parties must still negotiate responsible terms.
Is it for you?
Best for
It is best for institutional lenders capable of maintaining long-term private-equity fund and co-investment relationships.
Not ideal for
It is not ideal for lenders seeking isolated transactions without the capital or patience to sustain partnerships.
From the transcript
“We invest with the best, and then we look to do other things with them.”
“It's really good for deal flow.”
“we start out on the five yard line, right.”
From the episode
Ken Kencel on the Rise of Private Capital
Ken Kencel