Private Markets 360° Sep 18, 2026 30m 19m saved
With Melanie Levine, Partner and Global Head of Client Partnerships and Business Development at Davidson Kempner
Davidson Kempner ran about $5 billion when Melanie Levine joined it in January 2005 as the 28th employee. The firm is now above $40 billion with close to 500 people in eight offices.
A manager that has grown eightfold usually sells more of whatever is raising money. Levine spent most of this interview arguing the opposite case: that direct lending has been over-funded, that its returns should now be expected in single digits, and that the money worth having is the money that can move.
"So we like to say that we go where others retreat."
Levine was the second hire on Davidson Kempner's fundraising team and built the sales, investor relations, client service and product development functions around it. She came to the job from four and a half years selling equity ideas to hedge funds at Goldman Sachs, having turned down a return offer in investment banking to do it.
The full interview is covered here so you can skip it. 30 minutes of audio, 11 minutes of reading.
Here are the 9 insights that matter.
Key Takeaways
Traditional private credit should be treated as a single-digit return asset class, not a double-digit one
Direct lending's compressed spreads and weaker lender protections are the reason, after years of heavy capital formation
The firm went from $5B to over $40B and one strategy to a platform spanning credit, convertible arbitrage, equity, real estate and asset-based finance
Partners are paid on the whole firm's economics, which she contrasts with a pod model
Hedge fund allocations rose over the past 12 months among existing allocators and consultants, but nobody who left has come back yet
Improving DPI has moved endowment conversations from managing liquidity constraints to putting capital to work
Extensions, payment-in-kind coupons and liability management postpone stress without removing it
She calls the 2020s a possible decade of absolute return, on higher dispersion and higher rates
The reset is not global in timing: US direct lending is crowded while parts of Europe and Asia sit elsewhere in the cycle
1. From Wharton to a Sales Desk
Levine graduated from the Wharton School in 2000 after several summers in investment banking, the last of them in equity capital markets at Merrill Lynch.
The summer she compares to now
This was during the 1999 tech bubble, which actually has some very interesting similarities to the current AI bubble.
Melanie Levine
Working alongside institutional equity sales on initial public offerings and secondary offerings was what changed her mind about the job she wanted. She preferred generating and discussing investment ideas to banking analysis.
So she turned the banking offer down
So, I really took a less conventional path after graduating Wharton.
Melanie Levine
She went to Goldman Sachs in institutional equity sales instead, spent about four and a half years pitching equity ideas to hedge funds, and joined Davidson Kempner in January 2005 to expand the firm's non-US investor base. In mid-2005 she helped launch a second hedge fund product, the firm's first after two decades on a single strategy.
The advice she would give her younger self
So I would really say don't follow the herd. Follow your strengths. Try to be independent-minded.
Melanie Levine
2. $5B to $40B in 22 Years
Levine has spent close to 22 years at the firm and described the scale-up in headcount and assets rather than in returns.
The growth she has been part of
I've been part of a great growth story from about $5 billion to over $40 billion in AUM.
Melanie Levine
The platform grew out of merger arbitrage and distressed debt into credit, convertible arbitrage, long-short equity, asset-based finance, opportunistic credit and real estate, across the liquidity spectrum.
What that looked like in people and offices
When I joined back in 2005, we had one strategy. I was the 28th employee and today we're approaching 500 people across eight global offices and we reached our peak AUM of over $40 billion.
Melanie Levine
Forty years of investing has produced three generations of leadership, and she called the current one DK 3.0 after a leadership transition in 2020.
The line she drew under the growth
So in our view we've continued to grow without becoming asset gatherers.
Melanie Levine
The firm is owned entirely by its partners and employees, who invest alongside clients.
3. A Partnership, Not a Pod
Asked how the culture survived that scaling, Levine went to tenure and to how partners are paid.
Promotion is the retention mechanism
It's really a meritocracy. People are given more responsibility as they earn it. Long tenure is really part of our DNA.
Melanie Levine
The chief investment officer and managing partner, plus four of her other partners, started as summer interns. The 14 active equity partners average roughly 16 years at the firm. Hiring from outside happens when it makes sense, but most leaders grew up inside.
The partnership is the largest investor in the funds
We like to say we really drink our own wine or eat our own cooking.
Melanie Levine
And the compensation difference she thinks matters most
Partners participate in the overall economics of the firm rather than being compensated only on their individual strategy or P&L. So it's very different from a pod model.
Melanie Levine
That, she said, is what lets people work across strategies, geographies and asset classes instead of defending a silo, and it is how capital gets moved to whichever geography or collateral type looks best on a risk-adjusted basis. The firm re-underwrites its processes and strategies as well as its investments. She summarized the longevity as aligned incentives, a collaborative culture and long-term discipline.
4. The Repayment Business
On what separates the firm from other alternative managers, Levine started with the mandate and ended with a distinction about credit.
The business she says they are in
As we like to say, we're not in the origination business. We're in the repayment business.
Melanie Levine
The mandate is global and flexible by design, which she said allows constant relative-value comparison across geographies, strategies, asset classes and the capital structure. Investing across public and private, credit and equity, is the capability she called a real competitive advantage.
Where they look for it
So part of our DNA really is turning dislocation into opportunity.
Melanie Levine
Markets that are less trafficked, more complex or harder to enter are where sourcing and experience pay, in her account.
The experience behind that claim
We've been a distressed investor since the 80s. So we're comfortable with complexity.
Melanie Levine
Workouts, restructurings and enforcing creditor rights are part of the same work, combined with local sourcing relationships and operational capability.
5. Where DK Fits in a Portfolio
Different strategies solve different portfolio problems, and Levine was specific about which ones.
The role she wants the multi-strategy funds to play
So we think our event-driven multi-strategy approach can really serve as a portfolio ballast within a portfolio.
Melanie Levine
The objective is compounding with low correlation to equity and credit and relatively low volatility, which she argued gives an investor room to take risk elsewhere. Endowment and foundation clients the firm has had since the 1990s hold the liquid strategies alongside higher-octane closed-end private funds. For some investors absolute return now occupies the place fixed income or cash used to.
6. Listening Before Selling
Asked how she translates a broad platform into a portfolio-construction conversation, Levine put the emphasis on the client's existing book rather than the product list.
Her account of the job
I always say that the real secret to dealing with clients is to be a really good listener.
Melanie Levine
The hedge fund strategies are sold as risk mitigators, sometimes inside a portable alpha program, sometimes as a substitute for part of a fixed income allocation. A client already heavy in direct lending is offered the closed-end opportunistic credit funds as a diversifier; a client heavy in core real estate is offered the opportunistic real estate strategy for the same reason. Liquid strategies belong in liquid vehicles and illiquid ones in closed-end draw-down structures, a match she said should follow the underlying opportunity.
The positioning underneath all of it
Our history has been about turning dislocation into opportunity, but having the flexibility, experience, and resources to provide capital when others may be constrained or stepping away.
Melanie Levine
Education does not stop at the subscription, in her description: the product specialist and investor relations teams exist to explain what is being bought and why. What she wants the platform to deliver is differentiated return, diversification and downside protection.
7. What Allocators Want Now
The hosts asked whether allocators around the world are converging or diverging. Levine described one set of themes with regional variation underneath it, and gave numbers on direction of travel.
Hedge fund allocations went up, from people already there
Over the last 12 months, we've seen existing hedge fund allocators and consultants increasing their allocations, particularly across the institutional market. However, we're not yet seeing new entrants or those who left absolute return re-entering.
Melanie Levine
She said she hopes they return and has not seen it yet. US investors drove the strongest increase in hedge fund and liquid alternatives allocations over the period, though the pipeline includes several sizable international allocators, which she reads as evidence the appetite is going global.
The private side has not loosened
In private capital, though, liquidity is still very scarce and it's really hard to replace an incumbent manager.
Melanie Levine
Endowments and foundations are the group she sees changing. After several years of constrained distributions and reduced deployment, distributions to paid-in capital have improved year-to-date, and over the past 6 to 12 months their conversations have moved from managing liquidity constraints to selectively putting capital back to work. Public pensions come at it differently: many already hold substantial direct lending and private credit, and are asking what is genuinely additive rather than adding more illiquidity. Regulation, liquidity requirements, risk appetite and governance differ by region, so there is no single answer.
The question she says every allocator now asks
They're asking not simply is this an attractive strategy but you have to really think about what does this add to my total portfolio.
Melanie Levine
8. The Capital Structure Reset
The firm has described the current environment as the early innings of a broader capital structure reset. Levine explained what it means in practice.
What the reset actually is
So when we talk about that capital structure reset, we're really talking about the consequences of moving from the decade of cheap money to a more normalized cost of capital.
Melanie Levine
The adjustment takes time and she thinks it is early.
What stops working
So we believe the last decade rewarded owning beta and illiquidity.
Melanie Levine
The private credit number she wants reset
So, we believe traditional private credit should increasingly be viewed more as a single-digit return asset class rather than something that consistently delivers double-digit returns.
Melanie Levine
The cause she named is the weight of money already raised.
What the capital formation did to terms
Significant capital formation across direct lending has really compressed spreads and in some cases weakened lender protections.
Melanie Levine
Borrowers whose capital structures were built for a different rate environment are the other side of that trade, and the tools being used on them buy time rather than fix the problem.
Why she thinks the stress is deferred, not gone
So extensions, PIK liability management exercises, they all can postpone that stress, but they don't necessarily eliminate it.
Melanie Levine
Being able to move between public and private, performing and stressed, liquid and illiquid is the advantage she claims from it, and the reason she thinks opportunistic credit and asset-based finance become portfolio complements. The reset also runs at different speeds by region.
Which is the argument for staying global
So we believe the US direct lending is highly competitive today, but parts of Europe and Asia may offer different points in the cycle.
Melanie Levine
9. A Decade of Absolute Return
Higher rates and wider dispersion are the conditions Levine says favor event-driven investing, and the firm has put the claim in writing.
The call the firm published
So we've even said this in a white paper that the 2020s could be the decade of absolute return.
Melanie Levine
Her reasoning is that dispersion produces idiosyncratic winners and losers, which suits strategies that do not need markets to rise. Interest in absolute return has picked up over the last 12 months after several years of investors leaving it.
Where the 2026 opportunity set has been
Convertible arbitrage strategies have remained very interesting in both the US and Asia.
Melanie Levine
Convertible issuance has increased in the more normalized rate environment, which she does not expect to end soon. US liquid credit is the other area she named, driven by the maturity wall, refinancing needs and capital structures adjusting to higher rates. Artificial intelligence is a third, as a source of dispersion rather than a theme to own.
Why she treats AI as a two-sided trade
It may create tremendous economic growth but also creates winners and losers.
Melanie Levine
A private market portfolio may not capture the upside and can still hold businesses that get disrupted, which is the case she makes for diversification and active risk management.
Bonus Insights
Levine made the same point about deployment twice, from opposite ends: what the firm sells is the option to wait.
On not needing to pick the winner
But the key for us is not having to predict which single opportunity will dominate.
Melanie Levine
The version of that aimed at allocators is a preference for liquidity over precision, and she put it as the portfolio implication of everything else she had said.
What she thinks gets rewarded from here
So we believe the next several years could really reward investors who preserve liquidity and give managers the flexibility to really go where the dislocation is rather than trying to predict exactly where it will occur ahead of time.
Melanie Levine
Levine's bottom line is that the move from cheap money to a normal cost of capital has further to run, that it takes traditional private credit down to single-digit returns while creating work for flexible capital, and that the strategies built to trade dispersion are the ones she expects allocators to keep funding.
Products, Companies & Tools Mentioned
Davidson Kempner (Her firm: over $40B, approaching 500 people, eight offices, owned entirely by partners and employees and invested alongside clients)
Goldman Sachs (Where she spent four and a half years in institutional equity sales before joining Davidson Kempner)
Merrill Lynch (Her last summer internship, in equity capital markets during the 1999 technology bubble)
The Wharton School (Undergraduate class of 2000, after which she declined a banking offer for a sales seat)
Books & Resources Mentioned
Davidson Kempner's white paper on absolute return (Where the firm set out the claim that the 2020s could be the decade of absolute return)
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