Hiya - from continental Europe, I've been working c.10y in London: 4y IBD FIG and 6y private credit. In buyside, I first did PE-like work (M&A, Board rep, etc) following a portco restructuring, and then currently doing special sits investments (illiquid). Always worked at LDN office of US firms.
Happy to answer questions about private credit (direct lending / special sits), CLO or L/S credit HF careers, hiring processes, comps.
Hello! Is it possible to move from private credit to private equity (early career stages)? What are the base salary and bonus differences between private equity and private credit?
This is a common question and the main reason why I always suggest to start with IB. Credit mindset is very different from equity and so is the personality of the investors in the two.
Yes it’s possible in the early stage of career (first 1-3 years I’d say) but hard after associate for the reason above: I think I would be a mediocre equity investor at best.
Cash salary is basically the same and often higher in credit, but carry points are richer in PE (and clearly worth more given (1) skew to capital gain vs interest income (better for tax reasons) and (2) higher returns for the equity).
Do you ever see people go into DL/PC from non-traditional backgrounds such as Big 4 (audit/consulting/transactions)? Interested to hear about the work life balance as well as if carry exists and if so at what grade does it kick in.
Yes to Big4. Private credit / direct lending is the new way to call a loan officer as banks are retreating and non-balance sheet lenders are taking their place. The work is not too dissimilar (no offence to people, just the reality as I’ve done it) and big4 can have their chance assuming they know an LBO model and how to analyse a business (which most of Big4 juniors don’t).
WLB really depends on the firm but I’d say normally 9am-8pm and as needed towards closing a deal. Also I noticed that in buyside credit mid-level (VP/DIR) work more than juniors as they have to negotiate the facility and explain the deal to IC which are the hardest parts.
Carry normally at VP level but some firm including one I’ve been at gave only to DIR+. Quantum highly person dependent, there’s rarely a formula.
I currently work as a private credit analyst (Infra/RE/PP/SF/DL) in Annuities team at a large Life insurance company. We also have a public bonds mandate too. We do only IG credit for now so anything above BBB.
My interest is in shops like Oaktree Global opps, BX tac opps, etc., which invest across the cap stack. I did an internship in a distressed credit hedge fund which had a similar mandate.
Do you have any advice on how to shape my learning and work for this? Does the CFA have any benefit? I'm currently working on the Level 2 exam.
CFA has no benefit, you know all the technicals already I’m sure. Your main problem will be selling to a distressed why you want to pursue the career and why you are good at it. I’d strongly emphasise your HF gig: brush up on the deals you looked at, even remotely, and sell them as if you had a significant contribution in the analysis etc. You cannot afford to be labelled as an annuities insurance IG guy (it’s boring even writing it). Just being honest.
Thank you for the reply.
The HF gig was amazing even if it was for a short period. The current FT gig is nice in the sense of getting exposure to different assets but there is no PE/PC level due diligence which my team does. There is an Asset manager who sources the deals and we originate them and pitch them to the IC. I thought I'll be here for two years, do some 100+ deals (We originate a lot of deals as the BPA market is growing), and then recruit as a senior analyst/associate. This is my first FT job after masters in London.
Do you think it's a good plan?
hey, thanks for Q&A. Could you speak to:
> Opportunity set as you see it currently in Europe over the next few years
> Comp progression through VP->D->MD in Europe, and split between cash and carry
> What skills are needed more on the private credit side as oppossed to the public side
thanks!
Europe opp: in my view significant. New special sits and distressed funds are fundraising now (cannot name names) and will be in market by mid next year.
Comp: cash vs carry is just too subjective. In GBP it’s been like £150-250k Aso - £350-500k VP and £600k+ DIR. This is based on my experience in US HQed funds.
Public needs analyst coverage and daily grind to be up to speed with developments and being ready to trade. Sector expertise is a huge advantage as it allows to understand situations faster and trade on them. eg with FIG experience I knew I had to buy CS AT1 last week trading 16% YTM and they are up 500bps. In private it’s better to be a true generalist and legal / structuring becomes much more important. PC looks way more like PE than to credit HF.
thanks! presume comp figs are ex carry, what would you put as rough 'rule of thumb' carry given on top (if such a thing exists)?
How are those AT1s doing?
Sorry
Hi mate, what are your thoughts on the growth of PC/DL in London over the next 5 years? Do you think it’s going to continue growing or how might this recession impact the sector?
Secondly, how did you break in given that FIG doesn’t do much credit analysis? What experience helped get you in?
Growth is strong: despite PC has flourished in the past 5y, it’s still a small fraction of total financings in $ terms. To give an example, Vanguard and Pictet are building PC platforms right now and another bank (cannot disclose) will launch a PC fund next year. I think however that comp will stall: as banks lay off people post the underwriting losses of 2022, PC funds won’t have a difficult time hiring as they had in 2020-21.
FIG is a hindrance only to the extent you want it to be: I did loads of work on EBITDA businesses in banking (think AM, fintech) and asked for help to my friends in PC before interviews to figure out the various capital structure options (honestly there are like 2-3 which are widely used). I also marketed myself as a person who wants to broaden skills and one of the reason for moving was diversifying from FIG: I think this story telling resonated with the interviewers (and the person who hired me had a FIG background too).
Makes sense.
Do many of these funds hire MBAs with relevant experience? I saw BX hired an MBA intern in credit last year and Bain Cap Credit hired an FT, but are the others happy to recruit MBAs?
Hi,
I recently started in equity research and before that did a bit over a year as a VP-level credit analyst in corporate banking focusing on project finance. I like that I'm doing more research in my new role but also feel like I was happier doing credit analysis, equity doesn't seem to fit me very well. I'm better at analyzing downside risk, I think. I think I'll stick around for maybe a year or so and then see what I might do next. Private credit is pretty high on my list of things that I think I might like, as I find the public markets a bit exhausting and I'd rather work more deal oriented again.
Having said all that, first question: do you think the ER experience could be valued in private credit? How about the corporate banking experience? And how typical is it for PC to focus on specific sectors, as opposed to a generalist approach? I've been doing renewables and cleantech in both jobs and would want to stay there. Ideally I'd want to do private credit/direct lending for anything non-fossil energy related - renewables, hydrogen, batteries, battery metals, etc. Is that a thing, specifically in Europe as that's where I am (and understand you are)?
Thanks.
Before I respond just one clarification: when you say VP-level you mean you are also VP in your current role in ER and generally you have 6+ years of work exp? Thanks
Not quite, my career has been a bit unusual I think. Before corporate banking I was in risk consulting in a Big 4 and managed to parlay my way into the VP credit analysis role because I had some knowledge about the renewables industry from that consulting job. When I switched to ER they had me start as a kind of experienced associate I guess? But yeah overall I’m at 7-8 years work experience.
How have rising interest rates affected PC/DL given that a lot of the investments are at a floating rate?
There are 3 impacts: (1) positive on returns, as the actual deal IRR will be higher vs underwritten IRR at IC, (2) positive on carry since performance fees threshold is fixed and returns are higher, and (3) negative on company’s cash flows and their ability to refinance, though defaults at the moment remain low (especially since most docs have no covenants).
As rates will continue to stay high (just a fact, look at inflation persistence), defaults will creep up but I expect private lenders to just amend and extend or provide more capital. There was so much equity buffer behind senior lenders in the last few years that PC funds will have their value covered.
Could you explain why would the IRR be higher if the margin stays the same? Thank you!
Makes sense, has your overall workload been picking up over the last few months? What are your hours like currently, especially compared to your IB days?
I’m in special sits and work has significantly picked up. I cannot say the same for direct lenders overall but to generalise, large cap has slowed down vs MM funds which are deploying ok.
It really depends on your seniority. As an analyst / associate I used to do on average 9am-1am in banking and I did 9am-9pm in PC. I try to get out at 7pm these days but running to an IC or negotiating docs I put more hours than my associate :D
Would you mind providing your thoughts on distressed/special sits opportunities in the current environment?
What sort of deals do you focus on or find most appealing?
Also, there is abundance of dry powder and only spikes of distress. The end of CB tightening is likely close. In 2020 the discounts were fleeting; do you expect the same happening this time around?
Special sits is now investing in secondaries where very scarce liquidity is creating interesting opportunities and in primaries where sponsors / founders are (I say finally) willing to take 15% money to avoid down-rounds or excessive dilutions.
This is not 2020. Inflation at current levels requires higher rates than they currently are and CB will deliver on it, they know that a recession is better than the alternative. If you remember “low for longer”, well it has now pivoted to “higher for longer”. This creates structural opportunities to generate mid/high teen returns.
.
Infra is quite a separate part of DL but I don’t see why you cannot pivot from generalist to infra and vice-versa as long as you can sell yourself.
The hardest part is changing from vanilla DL to special sits, they require quite different skill sets.
Hey There - re-recruiting for credit funds after a stint elsewhere. Would love to get your views on sectors likely to be distressed in the coming future and interesting European names in the distressed space
I’m not gonna share names but you can easily order securities by ascending price. Amongst sectors which are suffering you can imagine there are consumer discretionary and RE developers.
A bit late to this Q&A, hoping you can answer.
1) I work for a WF/JPM/BOA type of bank in a corporate banking role (CB is housed under IB) that is the top lender in my industry vertical. My team works with solely private companies. From a skillset perspective, is CB applicable to PC? Do I have a shot at recruiting for PC? The general consensus on WSO is that PC will only recruit from IB backgrounds
2) What's your favorite and least favorite aspect about PC? Is it worth pursuing in the long run?
Apologies I missed this for a couple days.
1) Yes you can def recruit. Probably not for MF PC but there are many places where your background will be very welcome (think about Churchill AM type places for example). Competition will still be against IB guys but hopefully you have better acumen since you basically already do the job;
2) Least favourite part is that it's a commoditised industry with limited barriers to entry (probably scale only) which make the job quite repetitive (re: vanilla PC). Most favourite: it's a very scalable business still growing significantly on the back of banks' retreating (long term trend) and public markets flaking (temporary but helpful).
I think it’s worth pursuing.
I'm working in commercial finance/debt advisory in the US, more of a DCM type role, not really much modeling. I still have a lot to learn but moving to private credit/direct lending eventually from this advisory role does seem interesting. I have dual citizenship with Germany. How hard would it be to move over to a European company or a US based company with an EU office? What should I focus on learning? I know that I don't know enough to ask specific questions and that this will be hard to answer, but broad answers are ok. I don't have a traditional target school > IB background so I'm focusing on learning what I can now but moving to Europe at least for a couple years is a long term goal of mine. Also what is the WLB like? Do people actually take the month+ of vacation you guys get over there?
If you are Aso or below it will be feasible to move this side of the pond assuming you can model. VP+ would be much harder because at the end it’s a people’s business and your added value at VP+ level is a mix of technicals, docs negotiation skills and knowledge of the market (in particular advisors and sponsors).
On vacation yes in Europe you normally have 25 days of holidays and people manage to take them (2w Xmas, 1w Easter, 2w summer would be the norm).
What are your views on CLO exits and comp in Europe?
CLO is a pure beta business and honestly I never liked it. I think it can be a good role for a junior learnings the ropes but HY or even better PC have more alpha and more long-term potential: these are the most likely exits.
I cannot talk comp exactly but definitely lower vs most private market roles.
Hi! Thanks for doing this. Im currently in undergrad and next summer, I’ll be interning at an MF PC shop. I have a few questions:
Thanks once again!
Hi! I will reply in order:
1) I am not sure there is something specific for PC roles, I'd say follow the preparatory process for IB internships
2) Most MF PC shops now have special sits team investing out of the same fund: this is because a separate fund would not attract the same attention and would not justify the costs of those teams. For distressed as usual I'd read Moyer (PDF available online). As for the outlook, vanilla PC is an scale game ie you get paid out of management fees which are a % of AuM vs distressed which is a performance game. SO distressed funds will naturally be smaller than PC funds but should have significantly higher performance. Both have potential but in distress you are further along in the risk/reward path (also career-wise)
3) MF PC has limited exits especially if you do mostly LBO financings. You will need to prove that you are above average smart to be considered even for credit HF. Hard to move to any of the ones you mentioned unless you can prove you are really passionate about it and someone takes a bet on you (can happen especially at junior level)
4) In PC you do primary deals ie you are given all the info by the sponsor (eg DD reports, mgmt estimates) so it's somewhat an easier job vs public market where you must follow industries and names on a regular basis. Life-style is better in public simply because of market hours but it is grueling during earnings seasons and is especially bad in distressed shops due to the sheer amount of legal analysis involved. Comp in PC is similar to IB, ie steadily growing with some upside due to carry at some point when funds start to distribute (5-7y similar to PE funds, though PC have income distributions of interest payments quarterly) vs in public credit where the fund distributes performance fees annually (so more volatile comp but potential for significant upside earlier on).
On (4) I assumed you did not refer to CLO, which I just find an idiotic job for failed bankers.
Why the hate on CLO’s? Could also lead to more interesting stuff like Asset-Based Lending.
Hiya - thanks for all this, super helpful and interesting
I’m joining an AUM ~ 200bn PC team as analyst doing vanilla LBO financing and envisage my longer career path towards special sits / opportunistic like shops. What would think be the best-practice / things to pick up at work for the first 1/2 years? What will be the shops that are active and good in London / NYC? And how much is the transition possible given I join this team right after college without IB experience (one PE internship before but was not very much in-depth)
Thanks a lot
This is very familiar territory :)
I’d say pick up modelling first and foremost. You must be able to turn an LBO and understand capital structure in no time.
Then, in order:
(1) Understand how to underwrite a credit, how to create a downside scenario and what are the solutions for the lender in that case, (2) Take the time to read through the credit agreements IN FULL. I know so few people who did this as mostly just look at issues lists. No, go through the whole agreement for 2-3 of them and ask questions (what is sunset, ROFO vs ROFR, MFN…?) If they don’t give you the time, PM me with questions. (3) Go through the folders to find the deals which went through a restructuring and read those memo. (4) Dial in to all the investment committees even if it’s not your deal. Listen to the questions and note which answers are good vs not good.
Much appreciated!! Thank you so much
Not sure if this thread is still live, and thanks for doing this.
How common is it to see a move from liquid credit/CLO to PC/DL?
Always active, my friend.
It’s quite common (happened in my prior shop for example): the credit analysis is not dissimilar, the main difference is understanding of the docs which is deeper in PC since you have to negotiate them vs “keep it or leave it” in CLO land.
One more if I could. In the CLO world, the strcuture of the deal is given to you and if you wanted a 2L buffer and there's none, you don't invest. How does it work in the DL world? Do the debt advisors take care of the strcuture?
And how, as a lender, judge a structure? What tilts it in favour of a Unitranche + PIK vs 1L/2L?
Cheers
Do you see anyone with Credit AM experience (think Capital Group, PIMCO, Blackrock etc.)?
Sorry what do I mean “do I see anyone”…
Sorry - should've been more specific. Do any of your colleagues have a background in Credit Research from Asset Managers (Capital Group, PIMCO, Blackrock etc.)?
Do you know much about credit in Dublin? There are a few front office credit shops here (KKR, Blackstone, Guggenheim)
KKR Dublin is 1-2 people and one of them relocated from London for family reasons. Not sure about the others but definitely not a place I’d start a career in PC.
Hi,
I am very interested in Private Credit and Special situations investing. Do you know if any of the large credit shops have nordic investments teams?
I have studies in the Nordics and worked sell and buy siden credit analysis, as well as Lev.fin in the nordics, and would really like to consider London for an analyst position with a focus on the Nordic market.
Thanks!
A focus on the Nordics will come naturally to you since you are originally from there. Do not specifically seek for it or you will be perceived as very local and narrow minded. Join any good fund and let time and experience be complemented by your natural language skills.
Hello, thanks a lot for doing this!
I am currently at a micro fund (<£300m) covering liquid loans, where the compensation is horrible and learning curve has started to flatten. My goal is to move to a top direct lending shop in London.
Would you have any recommendations on strategies to reach this goal?
Also if relevant: I currently have an offer from a €3bn AUM shop that invests in all sorts of credit (IG, HY, loans (liquid and direct lending) etc) and a sell-side offer for an origination role with a tier-1 French bank covering IG corporates (products are mostly RCFs and TL A/Bs). Both roles for Associate 1 level. Do you believe that any of these would be "more aligned" with my long term goals of landing at a top PC firm? Also if you could share what would be an average comp for these roles in your opinion would be super helpful!
Wishing you a successful 2023!
Hi - Without knowing any details I'd say since it would be hard to move from such a small fund you are now to a top DL shop, the €3bn fund is your best option. No French bank is Tier1 and IG coverage does not naturally lead to PC. Hope this helps.
Thanks for the great thread! I am an upcoming Associate in US$7Bn Private Credit fund that targets 10%+ IRR. Are you able to share any resources you found very helpful for debt modelling, loan docs and learning the fundamentals (TLB, Unitranche, HYB, OID, YTM, YTW, MOIC).
Also what sort of modelling ability do PC/ Special Sit people need. Is it more LBO style or 3 statement or do people just forecast Revenue to CFADS
I don't have much modelling or Lev Fins experience so any help would be appreciated. I have heard some people recommend WSP Premium Package but seems pricey
The modelling for credit is the standard LBO model, nothing particularly different. A PE guy will focus more on revenue breakdown (too-down with TAM) while a debt guy will look more at cash flows (eg maintenance va growth capex, NWC).
I wouldn’t have dedicated debt resources: have a look at 10xebitda.com and unitranche.co.uk but if you don’t have modelling experience I’d highly suggest one of the WSO packages to make sure you know modelling inside-out.
Good luck!
Also work at a special sits shop (equity & debt - mostly illiquid). Curious if your group is using a leverage facility on the back-end for your credit investments? If so, what kind of advance rates are you getting based on the type of investments your making?
Single assets leverage facilities from banks are common in DL where the loan has a stable / predictable cash flow profile. I would never want our deals - which have PIK and often breach covenants (so designed to get more negotiating leverage with mgmt) - to be back-levered.
NAV facilities are easier in SS space but still not as common as in PE or DL.
Thank you for the thread. Are there any sources you recommend for private credit interviewing prep? Also what is the difference between case studies used in private credit recruiting vs. those used in PE?
Sources would be the same for PE, case studies are the same, ie you are given a CIM/lender materials and asked to produce company overview, industry overview, investment merits/risks and LBO model. In PE you focus more on upside (M&A, growth initiatives, potential for IPO/trade sale), valuation vs in PC where you focus more on on the downside, collateral value, covenants.
Thank you, very helpful!
Thanks for the thread.
Got a credit research/analyst (more public liquid credit HY, CLO, LL, ABS) interview coming up soon.
Sorry if its a stupid question, but could find any related discussions.
1. What technicals would you consider that I need to know? Or iow, what technicals would be great to know that would really impress the interviewer?
2. Also what is your opinion in liquid/public credit (not including PC, DL, distressed debt) such as HY, IG etc?
3. In terms of following the news regarding credit, what do you focus on apart from the typical interest rate macro news? As credit is really never mentioned in the media and its always equities, macro, commodities
Thanks in advance!
1. For more liquid credit interview, I'd "impress" by researching HY rating relval (eg CCC vs B/BB bonds spreads, current vs historical), know more about CLOs (default trigger levels, warehousing, suggest you listen to this Empty Rooms: Masterclass on CLOs at Eagle Point Credit Management - Capital Allocators with Ted Seides)
2. Really cannot comment around IG, as it's a relval asset class which I have no experience in. In HY you need to build a more fundamental view of credit and in (di)stressed credit you need also to understand docs and legals in detail. "Opinion" is a bit vague, you mean as a career, WLB...?
3. In this market I think macro trumps everything. You should have a view on rates and credit cycle and be able to articulate what drove regional lender collapse and how they mitigated/solved it, the CS situation, etc. There are so many interesting interviews questions based on current events!
Thanks for your comment.
By opinion, I mean as a career and the work life balance (not that the WLB bothers me), which is the more "better" career path for HY, LL, CLO and ABS?
And was it the comp like for analysts
Just on the follow up, what are the best sources of information for credit/fixed income would you suggest to finding more about BB/B and below bonds?
Trying to formulate a view on HY bonds and CLOs
.
What is the best place to start if i wanted to become a credit research analyst, what technicals should i learn first and what should I learn after?
what accounting fundamentals should I know?
In terms of resources, should I listening to macro/fixed income podcasts, newsletters put out by asset management firms?
It'd be very helpful for a beginner if you could give an example of a credit trade pitch?
Thanks in advance
Hey man - awesome answers thus far.
Really curious how you'd frame going from ABS/CLO/Pub-credit (doing a summer at BB later) to a private credit role (Ares/BX/GSO etc) from a framing perspective. Would the roles have a lot of transferability?
i.e., What would I need to focus on to make up for my experience in public credit which private credit requires (i.e., any specific modelling etc.?)
On another note - I saw you weren't a big fan of public credit. Does this also cover CLO equity management like the Eagle Point guy you mentioned earlier?
Hi! Skillset at junior level is applicable (modelling mostly) but the business model of public credit is different from private so they start to diverge quite quickly. In public credit you normally cover a few industries and names vs PC where deals are quite bespoke (and they will become even more now that capital is more scarce and PC funds need to do more deep fundamental credit research compared to the past few years when focus was primarily on deployment $ and equity buffer).
Though undifferentiated, junior roles prepare you for more senior ones so I find that CLO juniors are less capable of developing an independent thinking on new credits / industries compared to PC junior professionals (clearly a generalization). Long/short credit ie HF analysts are good with new situations but normally don't know how to negotiate docs from scratch and cannot run processes, which is key in PC when sponsors are involved. All these skillsets can be learned of course but I would say it's hard to move from public to PC after associate level.
I am not a fan of CLOs (not public credit in general, I like HF for the upside) because I think it's hard to differentiate individual performance and the industry exposure is narrower. just a personal preference.
Appreciate it - top quality response
Hi! Thank you for helping us out in this thread. Do you have a disadvantage going to DL straight out of college relative to IB or RX because of the lack of modeling? If you start as an analyst at a DL asset manager what are some typical exit ops? Is it typical for a MF to hire you if you were at a smaller fund in the credit space?
Only very few DL shops hire out of uni: most prefer more experienced analysts which have been trained in modelling and presentations. With the IB layoffs I expect buyside to be even more skewed towards hiring ex bankers which might have fallen victims of the redundancies. I don't think prior credit experience at smaller funds gives an advantage (or disadvantage) in MF hiring vs a strong IB background (entry-level job). I do think however that IB still remains the most flexible option for anyone who is still not sure what buyside career to pursue.
DL is normally considered an "exit opp" so I am not sure there is a further opp. As a junior, if you find out you don't like DL you can move to credit HF, special sits or even PE.
Hi, thank you so much for doing this. I'm currently an analyst in PC in one of the BB banks. My goal is to move to PC funds before turning VP for better wlb and that comp starts to diverge a lot between banks and funds after associate level. May I ask if the wlb and comp at PC funds are all quite similar or MF differs a lot from MM and US funds differ a lot from European funds? The wlb and comp also quite different from special sits to DL? When do you think would be the best time to jump and what skill sets should I prioritize learning (e.g. modeling, loan docs)? Do people at funds also need to deal with KYC and loan transfer this sort of admin stuffs? Thanks so much in advance!
Hi - I think this would be better addressed in DM / 1-1 call vs here since it seems very specific to your case. I am not sure I agree with comp divergence of banks vs funds but clearly depends on the bank (and fund). The two jobs don't differ much and admin is taken care of by middle office teams in funds too.
Are there any good primers for private credit you know of? Any tips you could provide for incoming DL analysts/associates coming from a restructuring background?
I don't wanna be THAT guy, but google "private credit primers"... One which is not strictly PC but I found useful and which might not be easily found is this https://www.lcdcomps.com/d/pdf/LCD%20Loan%20Primer.pdf
I am sure you can find plenty of "tips" online... I'd say just be humble and willing to learn, work hard, enjoy life in PC!
Fair enough. Have read the LCD primer got some good stuff. Are there any individual investors at PC shops you would recommend keeping an eye out that are currently highly regarded/shaping the industry? Any podcasts related to the field or macro economic environment you listen to?
Hi! thanks for the Q&A.
I'm an incoming summer analyst about to go through group placement. Could you provide some guidance on selecting between ABS/CLO/DCM groups, considering potential future opportunities like PC/DL?
I noticed you mentioned ABS being too niche and disliking CLO, yet you also said that CLO is good for junior-level learning. Thanks in advance!
Hi - If your desired endgame is PC/DL, the only real choice amongst those 3 is CLO. ABS is a vast market but a lot is done on banks balance sheet at cheap cost of capital, while funds take only the junior tranches of the securitizations. CLO is indeed the most similar to LevFin, which I'd say is still the best learning experience for PC/DL.
I'd avoid DCM since it's IG debt highly skewed to fins.
Thank you so much!
Hi, thanks for doing this. What’s your view on working at a Special Sits team at a MF (Apollo/KKR/Bain Cap) vs. joining the SS team of a HF focusing on both liquid and illiquid opportunities (King Street/DK/Farallon)? Would you know what are the differences in terms of day to day / career progression/ comp?
VERY interesting question and a bit debate of SS investors.
Day to day, there much more pressure to show performance in HF because decisions are directly attributable to individuals. In MF, investment professionals can "hide" behind ICs. Same works for $ generated though and is reflected in pay: MFs pay like corporates (base salaries, bonuses, carry all allocated based on formulas consistent across teams etc) and being an outlier is very hard. In HF there is much more dispersion in pay, both on the upside and on the downside.
Would be good to hear the view of other investors.
Awesome you’re giving detailed responses on every Q! Silver bananas to you.
Just curious, why private credit over staying on sellside? How do you think job market is with explosion of emphasis on private credit vs implosion of Levfin/M&A deals. Thanks.
They are two different jobs, it's not comparable. At the moment sell-side outside or RX is struggling: there's lack of credit which means less deals for PE. Inflation is compressing margins and interest rate killing cash flows so even corporates find it hard to finance deals (even assuming they have the cash to do it).
PC is the asset class with more committed dry powder so currently a credible source of funding. Default rates remain low but that is the consequence of bs MtM and A&E: maturities have been pushed out during COVID so we will see what happens when refi's come. Also consider that once current funds are invested, since it's taking longer to get out of older deals (due to lack of refi market, see above), LPs cannot just roll their commitment as they have done before, so I expect also PC to have some struggles. It will highly depend on the manager, I think it's going to be a polarized world: pick your GP well!
Hey, thanks for this Q&A. Extremely useful!
What are your thoughts on Park Square? One of the few PC places out there running an analyst program.
I don't comment single GPs in the forum, as I know most of them well. Please in my DMs.
Hey, thanks for the post, super helpful!
Just starting out in finance (ignore title) and have a few Q:
1) does special sits write equity checks?
2) does a background in project finance advisory tick the box?
Thanks
First, not sure why you amended your post from "Credit folks are only interested in receiving their interest payment and principal not whether the Co. grows or remains stagnant" to this. Please explain.
On your "new" Qs: (1) Depends on the mandate. Pref equity often yes, true common equity sometimes to capture some upside and juice up returns; (2) I'd say no.
Many thanks for the answer. Unsure if you're referring to someone else's comment above but this was my first comment on the post, maybe they had a similar background...? But I didn't ask that question so cannot answer for them.
Regarding 2, my background is structured finance/acquisition finance at a bank, working with infra/energy sponsors, have seen 1 exit from my team into DL but they had previous PE/PC experience whereas I have none, but took on an interest in PC recently so trying to break in, would appreciate any advice!
Also wondering would someone who's more open to taking risks be suited to SS? Imagined the day to day would require quick actions and ability to work under pressure etc. but that's just me speculating
Thanks
Hey man, just reading through the thread now and thank you for all your responses.
To explain, I was one who commented above (different associate from the one who posted the questions you’ve answered).
Gonna be interning in credit (likely HY) this summer in London.
What would you recommend in preparation for credit? Like trade ideas etc or anything
Also, assuming i convert, what are the chances of me moving into SS (i believe they run a SS fund)?
Too early to think about SS vs HY. Just make sure you enjoy the experience and you learn as much as possible. You won’t need to come up with trade ideas but this could be helpful to find some names for your further investigation. https://9fin.com/insights/categories/Market%20Wrap
Hey - sorry if this is a bit of a simple question. Only recently started to learn about IB/PE ins and outs, learning about what the firms do, what their work is - and don't know too much about the industries referenced in the post. Can you explain the terms associated with your post (DL, SSG for example) and what sort of work is involved in these fields of HF/Credit, and any resources you might know of that would be helpful in learning some more about it (i.e. a previous thread , a youtube channel).
Thank you in advance.
Hello - I'll start with the industry and its terms. PC (Private Credit, aka Private Debt) involves a fund lending to a company, ie similar to PE but PE funds own companies vs PC funds which lend money to companies. There are different types of PC depending on the type of debt:
Disclaimer #1: for the anal / know-it-all type folks reading this: it's by definition a generalization. Many of the mentioned funds (eg KKR, Ares) have a DL a mezz and a SSG strategy and yes there are DL deals in the consumer space as well. I think the above captures 85%+ of the market. Disclaimer #2: margin is on top of base rate.
Hi - regarding resources, try looking for "primers" ie simple materials explaining the industry. Just by googling "private credit primer" or "private debt primer" you can find a minefield of very helpful materials eg Private Debt: A Lesser-Known Corner Of Finance Finds The Spotlight | S&P Global (spglobal.com) , Direct Lending Primer (orcic.com)
What are your thoughts on moving to private credit from a banking subscription finance/fund finance/NAV lending background?(lending to PE/PC funds against LP commitments). Similar in some ways to LevFin but does not model. How would someone make this move/is it doable?
First, many PC funds have started the business of NAV financing, since providing liquidity to PE funds is becoming more and more important as in the current environment public markets exits are basically non-existent and PE fundraise has become very challenging therefore raising money through leverage is easier than tapping existing/new LPs whose allocation to PE is exceeding their original targets. I expect your skillset to be in high demand soon if it's not already.
Moving to PC is def doable but as explained in one of the posts above, it's all about your understanding of businesses and your ability to LBO. If you have a strong school/IB/fund name on your CV you will get the interview, but it will then be up to you to prove that you can go deeper into companies. Suggest you either prove it through a course (WSO, Coursera or the likes) or that you look at some public bonds and do some analysis. Check this out: Home | Unitranche (not mine), you should basically be able to build a few of these on your own.
Interested in Public Credit and SS (Distressed Credit Side), but leaning towards credit as its more market hours based.
Whats your view on L/S Credit vs SS?
Also, your opinion on l/s credit at a hedge fund like point72, citadel vs credit (and SS) at a mf credit like apollo vs credit fund like goldentree
Whats the comp like and wlb for each strategy?
Great post. Personally heading to a BB (JPM/GS/MS) as a Credit Risk Analyst. While there have been instances where people in my position do end up in PCs and Credit HFs (directly or indirectly [ e.g. Credit Risk > Lev Fin > PC]), I am not entirely sure what I must experience in order to make the move. Would appreciate it if you could share your thoughts on how best to go forward.
* Some of the things I will be doing include credit due diligence and analysis on borrowers and trading counterparties, reviewing and recommending for approval credit risk-related transactions, developing sovereign and macro risk views to aid credit decisions, reviewing loan/derivative documentation, preparation of loan and annual review memos, monitoring of portfolio quality and the rating of credits.
Hi there - Thank you very much for this very insightful thread.
I'm currently working in London as an analyst in the AM (public) division of one of the few US banks with a significant presence. However, I'm interested in transitioning internally to the PC investment team, despite there being no overlap or transferable technical skills between my current team and PC.
Thus, to prepare for interviews with the PC investment team, what specific areas would you suggest I focus on, and are there any recommended resources I could utilise?
From my conversations with people within the PC group, they have mentioned that having a solid understanding of paper LBOs and being good modelling are crucial to make this transition. They have also shared that this move can be challenging, but not impossible, as some individuals without prior relevant finance experience have successfully joined the team (even off-cycle) and others have made the internal move from controllers/ops roles.
Thanks in advance!
What LTV do you think a business doing NAV financing could get at the fund level to juice up its returns? At what rate?
Thank you for making this post and answering questions.
Hi thanks for doing this. Have you seen anyone from credit research move to direct lending? How is the process look like? Thanks!
Not the most traditional background since research folks prefer to go into AM or HF, but yes I know of a case. I really don't think there is a specific process or it would look anything different than knowing how to do an LBO and be able to discuss pros/cons of business models.
I am currently at a BB on a CLO Trading desk. Could I exit to DL in say 2 years ?
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