Good time of the year to start this.
Background is 2 years IBD and now 8 years in private credit (across 2 firms). Will try and keep this as anonymous as possible but currently finishing up my VP years at a MF PC shop in London.
Clearly have a bit of time over the next couple weeks so fire away!
Thanks for this. What are your opinions on Barings Private Credit in London? In terms of their place in the market, comp, exit opportunities, etc...
See them doing lower levered / lower priced deals. Probably lower defaults but it also means they aren't doing the racier stuff (which is more interesting from a personal development / career perspective).
Comp - no idea on base / bonus, I imagine it's fairly consistent across associate levels, say £200-300k all-in depending on level. But where you will start to notice a difference is the carry - if your fund doesn't do any PIK / equity (also important to offset losses on 1L debt) and is generally at the tighter end of the market on 1L margins then you are playing a management fee game rather than generating real return to the carry.
Exit ops - another DL fund. As above they have a reputation for being a bit vanilla so bit more difficult to move down the balance sheet.
Del
Curious about your views on market trends and implications for the industry regarding: deal types (feels like things moved from single lender to lender groups, less complex deals/lenders focused on blue chip businesses, what does that mean for the skillset?), intermediation in the space (more debt advisory than ever?), “LP” interaction (fee pressure? How to differentiate one direct lender vs another?), banks entry to the space (does that worry you?).
Also how do you feel about the current environment (away from it’s great base rates are 500bps higher so easier to make carry) to do deals and the impact on your portfolio (how do you feel about handling things when your portcos breach covenants / struggle with liquidity)?
Have you ever a move away from traditional private credit into credit opps or some sort of liquid stressed role? Currently considering myself so would be keen to hear if you had any thoughts.
I have thought about it for sure. I think the difference is in liquid stressed you are idea generating rather than deal doing, the latter is much more about the personalities / relationships. Credit opps can vary between basically PE and junior private credit so it's not too far off and certainly something that I might explore in the future.
Lots of questions here so will try and split it up and feel free to follow up:
1. Single lender to clubs: Partly a function of larger deals and partly a function of sponsors wanting to push lenders down to the lowest common denominator. Certainly very common in the US and has clearly made its way into the market in Europe so think it's here to stay. LPs hate it (they get concentrated at asset level). Lenders hate it but have done it to deploy in a slow deal environment. As more assets come to market next year (including the smaller mid-market deals) this trend should moderate a little but as above, here to stay.
2. Less complex deals: Feel like this year has been a tale of two halves. First half was risk-off and lenders very selective and also sellers very selective on what they were bringing to market so only the very best deals getting done. Second half, and especially last few weeks of Q4 have been a lot more risk-on. Lenders need to deploy, sellers need to exit, PE needs to deploy... think we'll see a lot more volatile market with some windows (including in Q1 off the back of positive data on inflation / rates holding) but it's a very fragile market right now and can expect risk appetite to change pretty quickly with any adverse macro. I don't think that changes much for the skillset... you might be doing less complex deals overall but your IC is tougher than ever so you've got to put together a solid thesis. I can cover more on this later, but the skillset isn't only putting together an IC paper... more broadly it's getting IC over the line, getting the deal over the line, origination etc.
3. Intermediation is here to stay and I'd say every deal we've been involved in over the last 18 months has an adviser around it with the exception being large-cap PE who have their own in-house team. It's a transparent market (just go online and search any P2P deal and you can see a lender's terms, plus plenty of market trackers). The only way to get around advisers is strong sponsor relationships... it was more relevant in 2021, but in that kind of market you have to be able to pick up the phone to the sponsor and get a real answer on what's important to them / where you stand.
4. Banks entering the space doesn't worry me. Morgan Stanley / Deutsche Bank already in and haven't done much. Think they have an advantage on the capacity side - plenty of HNW wealth management channels feeding into the banks to raise money, and some have an origination presence but unless they are doing it off balance sheet it's extremely cumbersome. There is also a cultural point in moving their ICs away from a black box to a transparent process that empowers deal teams to get a deal done. Don't think that's changing any time soon but I can see some logic to banks partnering up with funds - where it's happened in the past (e.g. SMBC x Park Square) it hasn't been particularly successful but I think that's more ad-hoc operational reasons more than anything fundamental.
5. Million dollar question... Pros.. higher base rates, slower exits (so builds money multiple). Cons: Slower deployment, more competitive market, higher base rates means a bit more stress on portco / less margin for error on new underwrites, tougher fundraising environment. Net / net I think 2024 is another tough year with some scope for greenshoots. At some point LP expectations on the PE side will normalise, leading to valuations being more conducive to deal making and that will get us back to a normal market but there is another tough 12-24 months to get to that side. But hey, I'm the cynical debt guy.. I'm sure if you put these questions in the PE forum they'll sell you the dream.
Re 3. - what do you think about GS? I believe they are mostly quite Vanilla lending but it looks like they are relevant, especially in Europe, with decent fund sizes
Yes, they are a decent fund size and operate more as a fund compared to some of the other bank operations with real third party money backing them.
I think they’ve now split into two teams as used to come across them more on the 2L / PIK side but increasingly they are doing more vanilla club deals.
Definitely a relevant shop.
1. Yes, but at the junior end. Think there is a window up until VP (say 7 years total out of university) to move around as you like, but after that it gets harder. If you make the move early enough should be fine from a comp / title perspective but making the move say 6 years into your career you might have to take a step back on comp / title and re-build your skillset (or at least convince others that you can rebuild it). I have considered it but unfortunately I'm a little late... but there are plenty of pros/cons on both sides.
2. Cash comp is broadly the same up to VP level (and even at VP it's pretty similar). Maybe some small differences a couple years post VP and some slightly more meaningful differences (still I'd argue <£100k) in terms of base + bonus higher up.
Real difference is carry... in PC you have a lower ceiling but you are clipping carry every year rather than waiting to the back end. You are also paying income tax on carry (given interest income) rather than cap gains. Carry takes a bit of time to ramp up as deployment ramps, but 3 years into a fund you can be clipping £150k+ p.a. in carry whilst your PE counterparts are still waiting for their first exit. Overall carry at one of the larger shops in PC should be £1-3m at VP level (a LOT of variability) and I'd say £3-5m in MF PE. That gap grows quite significantly as you get to Partner level.
In either job you'll be well on track to high 7 figures / low 8 figures.
PC VP's making £1-3m is just wildly inaccurate, anyone in the industry can verify that. Not sure why you'd drop that whopper after giving relatively decent knowledge.
Currently a Levfin analyst, undecided as to whether I'd want to stay on at a bank vs move to PC. Do you have any words of wisdom or insights you could share for somebody in my shoes?
e.g. How do you see BSL / PC co-existing in the next few years, notably if rates have indeed peaked? Could you comment on standard hours / WLB too?
The difference is 1) how deep you go on underwriting, 2) how creative you can be on structuring to get a deal done (e.g. my shop we can take some minority equity if that is attractive / helps win the deal) and 3) portfolio management post deal which still sits with the deal team in PC.
I think pretty easy to move from PC back to levfin if you don't like it. At analyst level you should be considering if you really enjoy the learning about a company part of the job.
I think Europe will move more towards a US model where banks either syndicate to PC or PC funds syndicate amongst themselves. Yes, you have the large deals which have gone PC in the last couple years but there will always be a market for syndicated TLBs (ultimately it's structurally cheaper). There is still a huge mid-market in Europe that just can't access the BSL space. A lot to be said for speed of execution and flexibility as well.
WLB in PC can vary by shop and of course market environment. For me, now, post covid it's say 9-6pm in the office and an hour or so in the evenings to clear the inbox. More when a deal is on or a portco is in a tight spot. It is a 24/7 job though... if you are trying to build sponsor relationships and they call with something interesting on a weekend / on holiday then it's tough to turn down that call or give it to someone else. That gets easier once you are at partner level where you are managing relationships rather than building them.
Our associates work pretty hard though - 9-9pm most days and maybe a bit less on say a Friday. They don't have time to do their admin / portfolio work during the week as that's usually full on with writing IC papers so normally half a day across the weekend as well.
What's been your comp progression over the past 5 years?
Just taking gross cash in as that's the only thing that's real... 2019 all in was £220k... 5 years later all in is £450k. Covid inflation helped the base but last couple years have only been saved by carry coming through. Some bells and whistles on top of that in terms of deferred shares / dividends.
Is that including carry?
What are the chances of a corporate credit analyst at a BB going into PC? How can they ensure they have the best chance of breaking in?
I think there will be a lot more hiring back end of 2024. At the end of the day any role which does analysis on companies is a good place to start (we hire 50% from DD teams in big 4 and 50% from levfin in banks). PC is a big universe and plenty of seats at analyst / associate level... if you can demonstrate a real understanding of what makes a good business from a credit perspective then you have a decent shot. Just be mindful that PC cash comp at analyst / associate is a little bit lower than BB... take the long view.
Why do you see this demand for people towards the end of next year?
For London you see networking as important to get the job or is it in the hands of HR? Considering a move to London PC with large cap LevFin & M&A experience but always seems a bit difficult without having a visa and contacts already
What are the opportunities for going from coverage IB to PC? Is recruiting for PC pretty much restricted to levfin/big4 DD or do funds also consider more plain vanilla IB analysts which may right off the bat seem to be more on a PE trajectory?
No, at the junior level we get CVs in from a broad group and will consider many backgrounds. It just so happens that last 2-3 years has been from levfin / big4.
Coverage IB is a great place in terms of understanding companies but the hurdle will be proving that you can think about these from a downside perspective (some good questions to think about in the HighYieldHarry newsletter)... the assumption will be that you are more focussed on selling the upside. I'd encourage you to speak to your colleagues in levfin / debt advisory on how they take the same IM you produce on the coverage side and tweak it for lenders.
What are the odds of a Public AM Analyst with 1 year of experience at a BB moving directly to PC in 2024/5, given strong technicals and modelling?
The BB itself has a PC group and the move is feasible, but it could take a long time (1-2y)
Considering the lack of relevant experience, should I target off-cycle internships instead of FT positions? I rather not, but I feel like I am at a disadvantage without relevant experience.
What would be your advice to make the move?
How much do you pay attention to the ECB/Fed wrt rate hikes/cuts (pressing issue atm) in your day-to-day operations?
This is 100% a key focus right now. The rate rises effectively mean 2 things - 1) portfolio is under a bit more stress as deals done in 2020/2021 at 6.5x+ leverage can't cash flow (especially if borrowers didn't hedge) and 2) there is less margin for error on new deals.
On 1 - we are quite hands on with our portfolio and I'm probably managing a dozen or so names. Some of these are distressed / restructurings and some of these are just tight and need a conversation with sponsors on putting in more equity to deleverage.
On 2 - we're still in a competitive market and the next guy is willing to put 0.5x more leverage and price it 25bps cheaper so you have to get creative on structuring (e.g. PIK toggles / tighter cash leakage provisions) and also you have to be a bit more in the weeds on year 1 EBITDA / cashflow as that's just key to get right in this market. Certainly in the heyday of 2021 there were a lot of lenders taking views on 1 week turnaround commitments... that doesn't happen so much now as both the debt and the equity are more focussed. Overall it's a good thing and makes everyone better investors.
Hi can I pm? Got a question but would rather stay anonymous
Opinion on Ares’ London DL team?
Short answer: one of the best in the market.
Long answer: large shop, lots of volume and very strong fundraises. However, they do have a reputation for being more expensive and don't do club deals which will be a competitive disadvantage as this industry moves firmly into asset gathering / deployment. I am also a firm believer that more expensive in PC world means more risk so there will be some portfolio stress (but it's a big and diversified so shouldn't impact overall fund returns too much) but you probably end up in the same place as say an Arcmont doing lower priced deals but also lower risk. Speaking to people there, as with any MF it's a bit sweaty at associate / VP level.
Probably one of the best DL funds for the next 5 years or so but competition (e.g. Blackstone / Arcmont / Hayfin) catching up fast.
Great, thanks
what are your opinions on Tikehau Capital?
Any info Comp/exits/returns would be appreciated!
Thanks!
Don’t know too much on comp.
They have 2 funds - a senior fund and a junior fund and I think as a junior you work across both. Really good position in lower mid market which is actually where a lot of interesting deals are - bit more hands on for sure.
I rate them quite highly in the sub €20m EBITDA space - trouble is to earn money in private debt (which is more about mgmt fees than carry) you have to deploy a lot so they are doing a lot of smaller deals which is arguably more difficult / time consuming than writing €500m+ cheques. As a result comp is also going to be lower than a MF
Overall decent place to be in PC. Exit oops probably a bit broader than another PC fund if you leave early enough. LMM PE should be an option.
would you say exits/lateral to MF or UMM PC would be possible from Tikehau too?
Views on MF PC (APO, BX, KKR)?
Apollo: Mostly insurance money from Athene. So pretty much limitless funds. Think it’s OK shop - they split execution / origination which is quite a strange setup and doesn’t lend itself well to exit ops (especially if you are in origination as a junior or execution only as a VP / director). Had some churn at senior levels and I’ve heard their IC can be a bit of a black box sometimes. Long way of saying solid brand and you’ll certainly do deals, but not a great internal set up.
BX: Solid shop. The ex GSO guys have basically all left but they’ve grown a great business and the BX brand certainly helps. Given size of the team / funds you’ll be doing a mix of plain vanilla deals and some more interesting stuff which is the right mix for exit opps. Think the only thing is it’s a bit top heavy and I’ve heard you don’t get much experience on legals as a junior / mid-level and even less on origination.
KKR: Big team and brand name but don’t actually do a lot. Little bit underwhelming on the origination side and a couple senior guys have recently left. Think that team needs a bit of a rebuild.
Anything on Sixth Street London and CVC Private Credit?
Sixth Street: Decent shop. They do a lot in the software sector. Decent mix of deals as well in terms of plain vanilla through to more opportunistic. From what I hear pay is top of the market as well. Work hard but I know a couple people there and they are good guys.
CVC: Don't now too much... don't come across them that often and I think they basically couldn't deploy last 12 months. Think fundraising has been slowish so if you are considering a role there definitely something to dig into.
Seems you were right - just had horrific interview process with CVC. No idea how their credit arm is so bad compared to the equity Jesus
How important is the university in recruiting? Do you still consider this when hiring Senior Analysts / Associates?
Not massively important... but we only hire our of IB / Big4 etc and I suspect for those roles university is still relevant / important. I think this is generally a cultural thing which can vary by firm. I also think it is a bit generational... there is a cohort of partners that don't care about university but then a cohort of VPs-younger MDs that do.
Thoughts on Allianz Global Investors?
Who? Haha! There's a few like this that kind of just take 10-50m tickets in other people's deals... not really originating / underwriting, just a silent coinvestor piggy backing off others.
Hey thanks for doing this - what are your thoughts on LMM private credit?
Insights on comp / career progression / WLB etc would be awesome
If by LMM you mean say <10m EBITDA then there are a few in that bucket... Muzinich and Apera probably the main 2, occasionally Tikehau (but they've moved up a little). Then you have a number of very small guys... Shard Credit Partners, Thincats etc.
I think your mileage may vary at these shops... deal flow is a bit more sporadic and it's more hands on DD (as the management teams / sponsors you are dealing with haven't done much financing previously / there isn't a polished DD pack available). I actually think it can be a very good learning experience. It's maybe a fair bit more travel as you are doing a fair number of non-sponsored deals and probably are sitting on boards. WLB wise probably a case that the peaks are higher and the troughs are lower.
Think the overall comment on comp is the PC is a scale game... it's capped returns and for the last 10 years, the all-in return on PC loans have just about cleared the 6-8% fund hurdles (i.e. not much carry). But, mgmt fee as you deploy more coupled with operational leverage for larger funds should mean MF PC is all else being equal significantly more attractive from a comp perspective.
The really LMM shops like a Thincats operate more of a hybrid model... they are putting warrants (usually nil-cost) on everything they do. Risk is higher and there might be some losses but on a portfolio basis the equity can compensate for that. However, I still think you need the operational leverage.. it's difficult to find these deals and that requires people which means even if there is some nice fund level return from equity investments you have to split that across a large number of people (and of course the partner takes the majority).
tough raising capital or indeed originating in the space atm
How feasible is moving from associate at a MM shop (~$10B AUM) to senior associate at a MF - does moving upmarket necessarily require a downgrade in title? Seems rare in PE but was wondering if that holds true in credit as well. To be clear I'm based in NYC but any color would be helpful. Thanks!
We would typically hire laterally with a clear message on timeline to promotion. Definitely plenty of cases of hiring associates and then putting them up in 6 months.
Think it's rare to promote at the time of hire, but at associate level you shouldn't necessarily expect a downgrade moving from MM to MF.
Would you say it’s possible to move into UMM/MF PC with a background in GP-led secondary advisory (PCA @ EVR/LAZ)?
I would say that's tough... PC is a blend of being close enough to the asset / due diligence and handling volume of deal flow. I think what is possible is moving to a credit secondaries business (which is a fast growing segment of the market) and then from there to MM PC and then to MF PC.
Do you see an Analyst role in LevFin at a bank or Debt Advisory at a boutique as the better starting point to move over to a fund at some point?
Both are great ways to get to the buyside and I know people that have done both in MFs / MM PC. If you have analyst offers from both feel free to DM as the actual bank / team will be important.
Thanks!
One would be BNPP, the other a smaller MM Debt Advisor but with great deal flow. So brand would be better going with the bank, but advisor is overall better pay and I feel like it might even be the better option to learn.
What are your views on growth of asset based lending and securitisations in private credit? Is there opportunity there d have you seen securitisation investment bankers in PC specifically in London?
This is a massive growth area. All the big guys have teams (e.g Ares has an Alt Credit team, Oaktree I think bought one and HPS recently built out one). It's a little bit of a different skillset to corporate credit but within PC probably a faster growing niche. I've been trying to understand the SRT trades that have been making the headlines in the US recently... interesting stuff.
How essential it is to have European language skills? Saw many job posting prefer candidates to have specific European languages.
Depends on the team. The very largest funds have local offices but the majority will be covering Western Europe out of London. UK is relatively mature as is France / Germany hence why you are seeing job postings for mostly Dutch / Spanish / Nordic speakers I guess.
What are your thoughts on Alcentra?
Terrible, please avoid lol. Took the keys to 3 businesses last year (very bad)
Agree with this... some pretty ropey underwriting decisions historically. At one time they were top 3-5 and now rarely see them. Having said that, speaking to a couple people there, feels like they've been turning things around recently
What do you think of larger AMs PC teams. Like Schroders, Fidelity, BlackRock, Pimco? Good experience or something to be avoided as a junior?
Used to work in one of these based in London and it’s a decent career but exits will be very tight especially since most of these funds operate in the MM or LMM space.
As a junior I would avoid... these places will evolve (if they aren't already) into taking very small tickets in larger deals - e.g Blackstone take and hold 80% of the deal and sell 20% to these types of investors.
Having said that, it's a great career at senior level... can imagine hours are great and your origination is basically picking up the phone from a small number of other lenders. If you can occasionally add some direct origination into the mix to keep the execs happy that's a great place for an easy WLB / decent pay.
Do you have any thoughts on Macquarie Principal Finance (the balance sheet investment arm)? Seems they're more generalist than infra, but can't find much info.
Any thoughts/insights on Hayfin Capital Management?
I think it's a decent shop. Good fundraising track record and do decent deployment without getting too carried away on leverage / pricing.
It's getting to be a big place now and they are in talks to sell their business so will be interesting to see how it progresses (especially if some of the senior guys get a payday and cash out).
Don't know too much about culture.
Hey! Thoughts on Arcmont? Heard they are doing well in fundraising but any other info would be cool! (Comp/returns/culture)
Hey! Thoughts on Arcmont? Heard they are doing well in fundraising but any other info would be cool! (Comp/returns/culture)
Hey! Thoughts on Arcmont? Heard they are doing well in fundraising but any other info would be cool! (Comp/returns/culture)
Hey! Thoughts on Arcmont? Heard they are doing well in fundraising but any other info would be cool! (Comp/returns/culture)
Hey! Thoughts on Arcmont? Heard they are doing well in fundraising but any other info would be cool! (Comp/returns/culture)
Hey! Thoughts on Arcmont? Heard they are doing well in fundraising but any other info would be cool! (Comp/returns/culture)
Hey! Thoughts on Arcmont? Heard they are doing well in fundraising but any other info would be cool! (Comp/returns/culture)
Hi, do you know what firms in London hire directly from undergrad for PC?
Thanks.
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