Reed Van Gorden is a Managing Director of Deerpath Capital, a member of the Investment Committee and Head of Origination. He joined the Investment Manager in 2015 and has 18 years of industry experience. He previously worked in leveraged finance and private equity at Golub Capital, Abingworth Management and JP Morgan. Mr. Van Gorden is a graduate of the Wharton School of the University of Pennsylvania (MBA, 2012) and Northwestern University (BA, 2006).

Reed Van Gorden, Managing Director of Deerpath Capital

The Pulse: Tell us about your background and career journey. How did you end up in your current role at Deerpath?

Reed Van Gorden: Growing up I always loved numbers and was exposed to business and finance from a young age. I also loved science, so I ended up at Northwestern with the opportunity to double major in Economics and Biology. I knew pretty quickly that I wasn’t going to be a doctor, but economics came pretty naturally to me. I applied to investment banks and was lucky enough to join the Leveraged Finance Group at J.P. Morgan. I worked in the general industries team focused on healthcare, supporting many of the big buyouts of those days. At that point, my assumption was that I would stay in healthcare for a long time. I liked the complexity of it, and frankly, I liked that I understood it. I then had the opportunity to join Abingworth, doing buyouts across healthcare IT, aesthetics, pathology labs and many other related businesses. I worked there for 2 years and then was accepted into the Health Care Management program at Wharton. Following Wharton, I was looking for a role in private markets and got a job at Golub Capital. Golub was a direct lender during a time when direct lending was relatively new and have grown significantly since my time there. I worked at Golub for 3 years in underwriting, focused on healthcare. I learned a lot about how to box in credit risk and how to think of things as a principal investor on the debt side. It was a great learning experience, but I eventually wanted to go somewhere to originate new deals and help build a firm. I joined Deerpath Capital as the first hire in the Chicago office 10 and a half years ago. I now lead the origination team, the people out there sourcing deals, and sit on the investment committee. Healthcare now is a smaller segment of what I do, but we are still very active in it. 

The Pulse: How did your experience at Wharton affect your career trajectory and outlook as an investor? 

RVG: My Wharton experience taught me the complexities of multidisciplinary investing . It can’t just be as simple as the numbers. There are a lot of other things to judge, whichever way you want to look at it. Prior to business school I had 4 years of good experience, but I don’t think I fully understood the nuances of making an investment decision. Business school also allowed me to explore and figure out the right place for myself professionally. I tried a corporate role and learned that the corporate world was likely not for me. I needed to be in finance. I needed to be investing-oriented.

The Pulse: For those who might not be as familiar, help us define private credit and its function within the industry? 

RVG: The definition of private credit goes way back to when banks were very active in the market, doing deals that were not syndicated, not 144A, and not high-yield bonds. That is not how we use the term today. Today, “private credit” refers to deals that exist outside of the banking landscape. There are multiple flavors. What Deerpath does is direct lending to sponsor-backed companies in the lower middle market. There is also non-sponsored direct lending where you work with founder or entrepreneur-owned businesses. Asset-backed finance (ABF) refers to lending against some type of hard asset, such as real estate or inventory. Quite a few companies now do royalty or IP financing. Even fitting in the ABF world are loans based on a pool of consumer loans. A relatively new advent is the investment grade market. Direct lending, and maybe more broadly private credit has really exploded in the last several years. 

The Pulse: What has been the key driver of this explosion in the private credit market, and what kind of health care industry considerations may be related? 

RVG: The explosion of this market has happened across industries. The biggest reason why this market has grown is that the banks have withdrawn from it. That withdrawal accelerated with each financial crisis and the associated regulations over the past two decades. The result of those regulations has been consolidation. 40 years ago, there were approximately 15k banks in the U.S. Now, there are approximately 5k. These are segmented into very large banks and super regionals, and a bunch of very small credit unions. True regional, city-based banks no longer exist, and they used to be large providers of what we do. 

Several health care dynamics also contribute to this trend. In direct lending, we have seen consolidation of providers and growth of practice management businesses. Providers are looking for flexibility and liquidity, which has allowed practice management to gain size and scale. In biopharma, there has been an explosion in cost of development and increasing reliance on outsourcing. It has led to a lot of business models that benefit from consolidation and growth. Across other sectors, such as HCIT, revenue cycle management, payer services…they all see nice economies of scale and are attractive to private investors. 

The Pulse: What is your perspective on how broader macro trends may affect the opportunity set for private credit over the next several years? 

RVG: There are several different ongoing factors. One consideration is less stability in business earnings, which lenders fundamentally do not like. As lenders we only have downside variance in our returns, so if a company underperforms, that is a negative. If a company overperforms, we don’t really get the benefit as debt has a capped upside. This causes lenders to be cautious in volatile sectors. The other question is the relative activity of private equity. Especially for what I do, it is important for PE to be very active and do a lot of M&A.

The decrease in interest rates is positive to many companies and positive for M&A activity as the cost of debt is lower. Economic growth seems to be trending well overall. It’s sort of a mixed bag at this point.

The Pulse: What about health care industry trends? How might they impact your outlook on activity in the sector?

RVG: There are certainly a few headwinds. Reimbursement pressure, certainly in Medicaid but possibly in Medicare, is a concern. The uncertainties with funding and subsidies make today’s ecosystem challenging as a lender or private investor. There is also some other regulatory uncertainty, with pharma, GLP-1 compounding, and R&D funding. Healthcare today is likely a little harder because of the overhang and concern. However, I’m optimistic. Healthcare is a defensive market with good margins. Over the long-term healthcare will continue to be a good sector. 

The Pulse: Looking ahead to 2030, what changes do you anticipate in the health care investment landscape? 

RVG: AI technology will have an outsized impact at some point. There has been a lot of discussion that we can finally get some real labor efficiency in healthcare from technology. Historically, the impact of technology has had a mixed impact on efficiency. The increase in data, implementation of EMRs, etc. has been at times clunky and difficult to use. With AI, technology can be at the forefront of making providers more efficient. If this plays out, the capital need for AI and training models will be immense. Financing will likely continue to shift to the private markets, whether to direct lending, ABF, royalty, or other methods. The advancements will be strong but not linear. It will be a messy process.

The Pulse: For founders, healthcare leaders, or even current students who may one day raise or deploy capital, what do they need to understand to make smart decisions for the decade ahead?

RVG: There continues to be a large opportunity for search funds and those looking to acquire businesses from the generation transitioning away. And I think that is as true in healthcare as any other sector. That opportunity continues to exist if you find it in the right place. The other thing to think about is interconnection with technology. Going forward, everything is going to be more connected to technology across every sector. The hard thing about healthcare sometimes is there can be a lot of negative press. People see the impact in their bills, or in consolidation, closing an office or hospital. Private markets get a bad name in healthcare. Sometimes it is deserved. But I would say it is mostly undeserved.

People must decide where in the industry they feel most comfortable and are most excited about. That’s just personal choice. I think there will continue to be a lot of opportunities and a lot of innovation with technology. It’s not slowing down anytime soon.