Can someone explain private credit/credit like I’m 5?
So I have been networking with some people and they say that credit/private credit can be a good exit opp after a few years of IB. I read the credit pages for KKR and Ares and I don’t really understand what they do. Do they provide private debt or are they investing in debt? Is there any difference between private credit and credit? I know these are dumb questions but I really need some clarification.
To keep it simple, as you requested, the private credit nomenclature encompasses a very broad array of differing strategies— everything from corporate direct lending to music royalties, from DIP financing to actively trading leveraged loans. At the most basic level, private credit, while an umbrella term used for lots of niche strategies as described above, usually means direct lending. These funds take the place of banks and lend money directly to companies. They provide a high degree of flexibility, speed, and specialization and in return usually get higher coupons. While direct lending can happen in any corner of the market, the most common is probably middle market sponsored companies with below investment grade credit ratings. The proceeds of the debt can be used for a variety of things, commonly M&A, refinancing, or recapitalization. Some funds just do this direct lending, while others can purchase debt on the secondary markets. I would suggest reading Stephen Nesbit’s Private Debt book if you are interested in the space (can probably find online for free). It’s a good overview of the space as an asset class.
Thank you so much! By any chance do you know which type of roles working private credit people seek out the most and pays the best? Looking at Ares website, the two main investment roles I see are direct lending and Credit. Are they extremely very different careers with different pay?
Ares Credit is split into Direct Lending, Alternative Credit, and Liquid Credit.
Alternative credit and liquid credit sound like more of a hedge fund compared to direct lending. Does that sound right? Thanks for all the help.
Alternative credit incorporates anything from investing in a company’s A/R (factoring), mezzanine debt, asset-based lending facility (collateralized by a company’s AR, inventory, etc.), a portfolio of debt collateralized by some asset, etc. It can get pretty creative - I wouldn’t necessarily consider that hedge fund work.
To address your initial post, lending debt is the same thing as investing. Anytime you invest capital in a company, it’s an investment - doesn’t matter if it’s through equity or debt (or some combination).
Thank you for that! Would you consider debt direct lending a more broad and simpler role compared to alternative credit? These are the investment team type of roles I see on the Ares website.
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