What is it like to run a debt fund?
I am curious as to what those who run a debt fund do all day? It seems like a niche career field. I’m in equity right now and want to make a move to debt. The WLB seems much better.
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I made the move to debt after being on the equity side for 6 years(brokerage before), not a fund though. Better pay (i moved for a bump in title though), and WAY better hours. It is not AS engaging as equity, but you can have fun finding new ways to navigate new challenges.
What’s the WLB and comp like compared to equity?
9-5(ish). I got a 50% bonus this year(wont' publicly comment on overall level). Whereas in equity I didn't get a bonus the last two years(the whole company didn't). I just had a really bad experience there.
WLB is definitely better in debt for a handful of reasons - business plan is essentially in place by the time the lender sees it or is certainly well advanced and they can piggyback off DD prepared by the equity. As lender I'm reviewing the business plan rather than coming up with it - having typically very limited or no ability to change it means I'm not thinking up alternatives. If the deal does progress, there's only the financing documentation to look after. If I'm lending at sensible metrics (in a creditor friendly jurisdiction...), the DD isn't as intensive as I'm comfortable I can recover principal + accrued costs in a downside scenario.
In contrast for equity, if I'm bidding on a new opportunity I'm spending a lot of timing formulating and diligencing the business plan with the operating partner. I can work from their materials, but there's a lot of DD I'll need to do myself to get comfortable with the assumptions. If I'm successful on bidding on something I then need to negotiate the acquisition documentation, financing documentation, and JV documentation. I also need to be very confident on the assumptions as the fan out of outcomes has much more downside, so the diligence is a lot more detailed.
I transact across both and both have their respective pros / cons. Debt is great for WLB / getting a deal done quickly as there's less to focus on, but it can also be pretty boring unless it's a very hairy situation. Equity is more interesting, but it's also a pain in the ass when you go through 4-5 processes where you've done a lot of work and aren't successful. The time spent on issuing a term sheet vs. submitting a well-diligenced bid is significant. If you can find a fund which does both it can be very interesting, we see a lot of interesting special sits opportunities where we wouldn't want to be the bottom 20-30% of the capital stack but we're definitely interested in being in it senior to the equity.
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I see. So your duty is to buy loans for the debt fund? Is there financial modeling involved?
debt funds are typically higher leverage / non recourse options vs. banks. You do mostly value add/opportunistic deals (value add multi, office leasing, conversions, etc). You're UW the RE and the sponsor/biz plan execution. Modeling, doing the same analysis vs. equity... besides dropping numbers into a pre-made waterfall. I'm biased (at debt fund), but imo best spot in debt (vs. bank, conduit, lifeco, etc.). Higher pay then all... and heavy flow vs. equity. Can easily to jump to equity after analyst/associate years.... you'll learn a ton. Re: comp... can be literally the same as any equity shop (really depends on the shop... remember nearly every "MF" REPE firm has a debt team now.... what do you think they get paid?).
and your duty is to originate/close loans.. source deals and uw/run DD etc. As a junior, likely reviewing DD/writing memo/modleing etc. As senior more focus on sourcing/selling biz like any role on the street.
Are you at an opportunistic debt fund? I think the less risky your loan, the more boring it is. Underwriting loans and pref/mezz that yield 15%+ IRRs is not as relationship based in my experience
Do you mind naming some debt funds I can look at to get into within SoCal? I know PIMCO is a good one.
from what i've seen, the loans yielding that high in today's rate environment are all small <$10mm deals. BREDS/BXMT or STWD are not going to be doing a whole lot of 15%+ paper. so sure, it might be more interesting to fund "off the run" "higher yielding" stuff, but i don't know many people eating well from doing those itty bitty loans. for what it's worth, i do agree that debt is kind of boring. currently working for a large-ish debt fund and looking to move to the equity side.
Do you think there’s a bubble ?
It’s hilarious reading through your posts. How can you be so clueless?
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