High Yield Research - Questions

Hey Guys,

Long time reader of WSO, first time poster. Was fortunate enough to secure a FT offer from my internship and recently accepted a FT offer for Fixed Income Research (as opposed to Equity), specifically High Yield (HY). It's at a BB, and all analysts are ranked very highly in II (don't know if that means much--HY is a much smaller universe in terms of coverage).

I've searched the forums pretty extensively for answers to my questions but answers seem to be either A) nonexistent or B) stale (pre-Lehman)

Anyways, my questions pertain to a Buyside move (shocking) to a HY fund or distressed investing fund. Questions below:

1) How much poaching is seen on this desk? Do clients (talking hedge funds and mutual funds here) contact you directly at a very junior level if they think you are a good analyst and you've been working with them for some time? How long does this usually take- ~1-2 years, more?

2)Would I have to do most of the leg work here if I would want to make a buyside move? AN example,Sr. Analyst is buddies with a PM at a prominent HY fund, and I do the bitchwork for him (aka send the PM and his analyst assumptions, get him up to speed on a certain piece of litigation, etc.). So I would know the PM/Analyst on a very basic level here. Would I push from my side, or is this really frowned upon if they are not dropping hints at all(remember, the PM is buddies with my Sr here so he could easily say something)?

disclaimer: so I'm totally fine doing legwork--I just want to get a sense for the aggressiveness I should be displaying from day 1. If I don't need to focus that much on doing this legwork, I can spend more of my time getting up to speed on my industry and its names rather then schmoozing on the phone

3)How important is it to understand CDS here? I saw my Analyst looking at their spreads in the summer, although I do know this is a volatile environment. Would this just be a 'sweetener' with any distressed fund, or would they expect you to understand why a spread on a certain tranche is blowing out all of a sudden (so you can then start doing some leg work on the security, etc)?

I appreciate all the help here guys. I'm sure this will open up other questions, but it's a good place to start. Thank you.

 

Remember that a lot of the big mutual funds are going to have 1st year RA classes of their own, so it wouldn't make much sense to go outside to get someone that early in normal circumstances. A lot either start out of UG or come after going to a top B-school. That might be the more typical career path to get in, but networking never hurts and can open a lot of doors too. Sorry I can't be of more help.

 

Thanks for the info. Not sure of how many Mutual Funds have HY or distressed funds, but that doesn't sound unreasonable. Targeting a smaller fund might not be the worst way to break in I'm guessing. B-School is expensive and kind of unnecessary if I know I want to head to a fund (networking can bring me similar results).

Any other input here? Thanks again.

 

There are a lot of funds that will only invest in HY or Distressed. If you try to break in without an MBA, then your options could be narrowed to a list of your buy side clients. The more idea generation you can get early on, the better.

The MBA route is obviously expensive, but if you can go to HBS/Wharton/other top school and Fidelity, Wellington, Putnam all recruit directly from there, then that can be your ticket in as well. I think it's better to see what your experience is like, how much idea generation you have, and your relationship with clients before making a decision.

 

Tough. Sounds brutal (in terms of breaking in).

I think the problem is going to lie in idea generation---not as much the idea generation I actually have, but having any part of my name stamped on it....a Senior Analyst is going to take credit for any homeruns. I guess as long as ideas are sound though, both of us would be getting credit, even if I only get 10% of it. Probably helps that they are only 2 man (or woman) teams.

Moreover, IDK how widely ideas are circulated compared to being kept internally on the HY/Distress trading desk. Book isn't huge anymore obviously (

 
Best Response

Desk analyst don't publish. Desk analyst is better as you're more situation focused, advise on balance sheet positions, effectively have your own book in some places, wider remit etx. you literally sit on the desk and have a lot more involvement with traders, whereas research are separated by Chinese walls hence less technical know how is imparted. Also publishing is a ball ache and having to provide quarterly updates on a name where there is no longer a compelling trade is a waste of time.

You need to delineate between the subsets of distressed. Loan to own is best learned trough RXing advisory, liquid distressed best through a desk analyst, claims I'd say desk analyst but thorough analysis is best through RXing / IBD.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

not advisable to think of Research Exit or any Career Exit options in terms of "yield" like an investment .. because it is not only a matter of effort/time for learning and doing the work [(it is not as simple as "I work so many hours and get paid this much" -- this usually turns out to be very frustrating in the medium/long run because we always want more either money or something else)] but also about being suitable in terms of the required temperament for the job and the organization where you will go and the country where you work since the working culture varies from country to country, industry to industry, firm to firm, department to department and also what the job market is like at a particular point in time .. first, find out the job descriptions and the daily routine for the level you will enter at and routine of lets say 7 years down the road, 10 years down the road, etc, find out about career progressions, pay-scales, additional academic requirements you might need and then decide if it is really what you want to do, learn to differentiate between Fact and Opinions with every piece of information you will get..., Generally for Sell Side ER exit options:- 1.ER Sell Side Analysts move to the Buyside as analysts and try to become portfolio managers, 2. some move to Investment Banking, 3. some move to the sectors they cover, 4. some go to S&T or Treasury, 5. corporate finance it varies.. depends upon what you are looking for and what you can get, many people never really know what they are looking for and always keep on hopping from one job to the next hoping it will be what they truly want .. try personality assessment tests like the Big 5 Trait Test (for Employee Selection) and MBTI (for career development) to get any insights about yourself

 

Because I laughed at your username:

1) those are the best starting point. You should also get a guest login to distressed debt investors club and read through some ideas. When you think you're ready you can start going through old dockets as well.

2) Nah not really. The math-heavy areas of fixed income are more focused in structured credit and IG where a lot of the complexity comes from the structural complexities and interest rate factors like duration. Fundamentally driven HY and distressed shouldn't really require anything beyond calc/stats though people often view higher-level math curriculum as a signifier of intelligence/aptitude.

PM me on the write up.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

I might also recommend Credit Bubble Stocks. Its not 100% distress 100% of the time like DDIC is - but it has some decent coverage. I particularly enjoyed their Suntech commentary.

Agreed with Kenny on the quant questions. All you need is accounting/finance/modeling to get started - experience with legal docs would be helpful as well. A lot of credit/distressed is structural (aka, reading credit agreements and indentures)

Array
 

I'm in distressed. Love it. Very few spots. Best hope is RXin advisory to buyside and M&A.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 
sa-jue:

Do any headhunters place or via network? Hours seem v good - do many make transition to hedge funds?

Network. Hours are not very good. Some yes, some no.
"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

Ive seen a few over the last year simply posted on the banks' websites & bberg. I was also headhunted for 2.

I agree there are very few of them. Most places differentiate between HY and distressed research. Many HY guys dont have jr analysts supporting them. They just cover their industry by themselves.

For HY specifically, bid/ask spreads have slimmed significantly, so there is less money to be made. Therefore, HY staffing is very lean. I would say you have very little chance unless you have direct HY experience already - likely from an asset manager.

For distressed, there are even fewer positions. I would say you either need to network in or have direct experience already.

Array
 

Distressed can be quite easy if you have an army of lawyers doing all the work for you.

Technically, you can just identify distressed situations, run a waterfall, and pay some lawyers to read all the documents. YMMV lol

But seriously, it all depends on the individual fund's strategy. Many places dont dig too deep & try to be directional investors (I personally like this method a lot, and think it works very well for equities). Not time intensive at all.

The market stress is another issue, because even though you clock out at 6pm everyday, you are worrying about price flux 24/7.

Array
 

Thanks for the color - can you expand on what you said about equities? Don't dig too deep or put on directional positions - do you just mean a pairs trading or equity long short strategy?

 

Try deep value funds. Funds like mine add 3-4 long positions a year and invest for 5-7 years, day to day price fluctuations aren't as important. It can be annoying at times though since you do a lot of work and none of your ideas ever make it into the portfolio. Hours 830-7, never work over time / weekends

 

Qui ut adipisci quo sed voluptatem voluptas. Saepe cumque inventore ducimus molestiae modi quas culpa. Dolor sunt sint voluptatibus quis beatae animi dolores.

 

Ad similique ea voluptatum eius eos non voluptas laboriosam. Quis delectus nisi sit excepturi fugiat ut. Aperiam qui qui et sed eius voluptatem.

Deserunt ut labore nesciunt laboriosam ut. Aut deleniti delectus minima tempora qui aut repellat. Consequatur sequi aut dolores. Quia qui ipsa quo ab. Accusantium vel et officia id.

Quod sunt animi aspernatur adipisci. Corrupti consequatur nesciunt tempora et architecto. Officia reiciendis expedita facere.

Voluptates ut maxime consequatur at iste fugiat. Et qui quas sed delectus sapiente quisquam. Totam error ut esse doloribus necessitatibus esse.

People demand freedom of speech as a compensation for freedom of thought which they seldom use.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (199) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”