Private Equity vs. Private Credit

Hi Everyone,

Long-time lurker over here currently at a credit hedge fund focusing on special situations and opportunistic credit. Haven't seen all that much about private credit vs. private equity. Been trying to assess whether I'd like to stay on the credit side or move to the equity side. I like the creative side and uniqueness of the structuring around credit, but I have more of an entrepreneurial mindset and feel like I'd like the PE side of things. I'd love to hear people's take on private credit vs. private equity.

What hypes you up about credit/equity?

What's the comparative work life balance?

What's the comparative pay?

Which has the best future outlook?

Any other thoughts etc.


 

Happy to chime in and provide my thoughts on private credit as I’ve been in the space for a few years, but if you don’t mind me asking why are you looking to switch out of a credit HF role? Seems as though opportunistic credit will be booming for the next 12-24 months and this is the best time to beat in a opportunistic credit seat

 

Thanks for taking the time. I’m not actually looking to get out. I find credit very interesting. I’m pretty fresh to the space and have a lot to learn. I’m mainly asking for some long-term perspective and insight from more experienced people. Like why do you personally like credit over equity or vice versa and what the pros and cons are

 

What hypes you up about credit/equity?

- Enjoy being on the credit side because you get to look at and close a lot more transactions - while credit is now much more commoditized than what it used to be, still far fewer private credit firms that can Agent deals relative to PE funds out there. You dig deep into new opps, but not to the extent a PE Sponsor would given you're sitting ahead of them in the cap stack. My firm invests cross capital structure too so get to see deals across senior 1L, 2L, uni, mezz, equity, etc.

What's the comparative work life balance?

- Currently working about ~70 hours a week, but normally I'd say anywhere between 55-90 - pretty wide depending on deal flow and where your respective deals

What's the comparative pay?

- About $175k-$250k for a first year associate depending on the size of your shop and whether they recruit former bankers vs nontraditional backgrounds

Which has the best future outlook?

- I'm inherently biased here, but I would think private credit given LP's are recognizing that rather than getting a 15%-20% IRR in an average buyout fund, they could be getting 10-12% in a levered credit fund and even more in funds that do slightly hairier deals that command a higher yield. Plus with private credit LPs are getting consistent cash pay on a quarterly basis while in PE your $ are locked up for quite some time 

Any other thoughts etc.

- Overall big fan of private credit and think it will explode over the next 5-10 years, but at the end of the day most private credit firms that do Sponsor backed deals will be at the mercy of PE deal flow as both go hand in hand

 
Most Helpful

Just a few generalized thoughts (I recruited both PE and PC):

PE: Focus on equity (Growth, Buyout, etc), Deeper analysis in fewer companies, Few new transactions each year with good amounts of PortCo work, Financial engineering and/or operational improvements to create IRR, Lifestyle comparable to banking early on but gets better, Very good pay with Carry, Career Move or opportunities include: B School, Other PE, HF, or finance roles, Industry or start-up move, etc. 

PC: Focus on various types of credit (1L, Senior Stretch, Unitranche and/or 2L, PIK, Warrants), Less deep analysis focusing on credit story but look at numerous companies, Several new transactions each year with some work on existing investments, Principal payback and Interest coverage to create IRR, Lifestyle much better (8:30am-8:30pm with some weekend work), Very good pay (generally a little less than PE) with less volatile Carry, More a career move or opportunities include: Credit HF, other debt strategies, maybe PE or industry if you want. 

PE and PC are kind of like Yin and Yang, won't exist without the other and are complementary. Though, very different mindsets and strategies. Both great careers. 

 

What exactly does the career progression in private credit look like and does the skillset transfer well to non-finance opportunities (as PE might do after working with portcos)?

 

At the end of the day, in private credit you are underwriting a downside, structuring to mitigate disaster in said downside, relying on management and ownership to provide you information you require or request, and monitoring your coverage from a collateral or enterprise value perspective. For LPs, you get consistent income but at income tax rates.

In private equity, you are underwriting an upside, structuring to maximize returns for future fundraising, focusing more time than you’d think wondering if you have the right management team, hiring new leadership if need be, structuring incentive plans and compensation packages, running parallel models to your management teams and questioning every number they give you. From an LP perspective, you see lumpier distributions but get capital gains treatment on taxes.

Which sounds more like what you want to do? You can make plenty of money in either asset class.

-- sm
 

I wouldn't focus on the "sexiness" of any particular industry. The only person you should worry about impressing is yourself. Your friends and family members don't go to work every day and do your job for you. So if you are chasing a career path for adulation and glory, you may be doing it at your own expense. A sexy career comes from a job that (a) you genuinely enjoy, (b) constantly challenges you, and (c) provides you with a sense of accomplishment and value. As an investor, you will likely get a heap of B, so you want to make sure A and C are covered. That's were the decision between thinking like an owner or a lender comes into play. Hope this is helpful.

-- sm
 

I had a quick question regarding potential business school exits. How is a PC gig directly out of undergrad at a decent UMM PC only fund in the space (so not Oaktree, Apollo, etc., but still 10bn+ AUM) regarded by adcoms? How does it compare to traditional IBD/MBB or other buyside gigs out of undergrad? Asking mainly for H/S/W, with which other applicants are you bucketed?

 

Depends on the firm both ways. I know pe firms that do 0 diligence and their associates are purely sourcing and pc firms that run as much diligence as equity investors. Matters the culture and the firm much more than the product

 

If someone works at a smaller firm (Monroe / Madison / NXT / AB) in NYC / Chicago, does it make sense to go to a BB Levfin group for 1-2 years to refine their skills and recruit to top credit shops like GSO, KKR, Bain, etc., and if yes, which BB Levfin group has the best PC exits?

 

Beatae qui unde animi quos. Natus labore perferendis est omnis nobis quo neque explicabo. Ratione voluptatum quos voluptas reprehenderit ipsa corrupti. Quibusdam id porro vero magni velit et et. Quis vitae facilis libero debitis est corrupti.

Illo sed atque labore. Expedita aut qui facilis laudantium suscipit. Qui et qui qui maiores in.

Career Advancement Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Warburg Pincus 99.0%
  • Blackstone Group 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

March 2024 Private Equity

  • Principal (9) $653
  • Director/MD (21) $586
  • Vice President (92) $362
  • 3rd+ Year Associate (89) $280
  • 2nd Year Associate (204) $268
  • 1st Year Associate (386) $229
  • 3rd+ Year Analyst (28) $157
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (313) $59
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

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
DrApeman's picture
DrApeman
98.9
9
GameTheory's picture
GameTheory
98.9
10
bolo up's picture
bolo up
98.8
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...”