Liquid credit at MF thoughts
I'm currently about 4-5 years of experience into a liquid credit role at a MF (KKR, APO, BX, Ares, etc) after a stint on the sell-side. The role is generally a pretty good setup for me as comp is currently mid six figures for a very manageable schedule. Lately I've been struggling with the feeling that despite these positives, it does seem that my learning has hit a bit of a ceiling in this role and there isn't much upward mobility + while comp will continue to scale a little bit higher as far as I know, it will also probably be capped in the 700-800k range given there isn't a path to a PM spot anytime soon.
My question primarily for those on the HF side is whether I'm getting caught up in a grass is always greener mentality or if there are any alternative pathways I should look into? I've been pretty fortunate that the people on this team aren't hard to work with and this role doesn't really lend itself to a lot of stress (although this is a bit of a double edged sword as there isn't as much of an incentive for performance) so it's not lost on me that risk adjusted this is not a bad spot to be in at all.
I don't really have a background in distressed (beyond getting some involvement in workout situations that we were holders in) so I'd imagine I wouldn't fit the candidate profile for a distressed credit/special sits HF anyway, just generally wondering if anyone with experience on this forum could provide some perspective on how I should think about this relative to other opportunities that may exist.
Following, starting as an analyst soon in a role like this.
My bad for this, as I see you’ve just posted questions of your own, but any advice for someone more junior heading into a credit role like this?
I think you should just go into it trying to learn as much as you can and ideally your team is set up in a way such that you end up covering a sector and can really build a knowledge base on that. Imo at the junior levels for an investing role you should really just try to maximize and solve for learning the most.
Bumping so hopefully you will get a qualified person to answer your question, but if you don't mind I would also like to you a question: is the comp at these firms for the more junior roles (call it analyst and associate), where carry is not a factor, similar to that of banking and private equity firms? Understand that comp shouldn't necessarily be a driving factor at these levels but am very curious and would love to know your experience with it.
Yes, comp on the junior side at the bigger funds is generally in line with PE as far as I'm aware. Starts to diverge at the mid to senior level once carry becomes a factor given these groups have tended to shift to minimum if none incentive fee structures.
What are your priorities? Do you have a ton of debt and children? If so, it is a pretty good seat for safety and stability.
However, it is no way for a man to live, giving up on achievement like that at barely age 30. Working at KKR Credit sounds good at cocktail parties full of plebes, but those in the know are aware of what’s up and you yourself know deep down what you’re doing is some monkey shit that a sophomore could do (and they will come for your job - an MD w/ 10+ yrs experience will struggle to differentiate themselves from a 25 y/o Associate, at which point the choice is obvious from the employer’s perspective). If you build yourself up and learn how to pitch yourself, you can transition to most anything. Remember, your biggest asset is that recognizable brand name on your resume. Outside of the narrow HY/distressed world, nobody has to know you were just a CLO monkey. Could you do LMM PE? I’d say yes, if you teach yourself what you need to know and present yourself as such. You could go to a more high-octane L/S Credit shop where your industry knowledge will be valuable and you have way bigger upside if you perform. You could teach yourself a bit of structured credit and go to the fin tech world. Don’t be narrow in your thinking.
I’d be careful thinking that if you just hang out they will pay you $700K for a long time. You will hit that mark, but as soon as you do you will start to feel pressure to justify your existence. Recall the aforementioned college sophomore who could do your job. Your PM is aware and they will sub you out as opportunity arises.
Not that i entirely disagree with you but what you're describing about "a college kid could do what the 40 year old does so don't underwrite 700k into perpetuity" applies to many more areas of investment management than KKR credit. It's true for equity mutual funds, L/S equity funds, credit shops (HY / CLO etc.) where you are trying to differentiate on actual performance but that performance actually isn't differentiated at all.
The only reason distressed MDs, private credit MDs and PE MDs don't get that same "pressure" is because they use relationships (distressed = your friend at every other buyside shop + advisors; private credit = PE funds; PE = advisors / bankers / prestige) to justify their existence at age 40+ instead of pure performance (both absolute returns & volatility of returns).
Yeah I don’t disagree with you. This is why spinning out by 35-40 is the sweet spot. Nothing in W-2 land is forever, and the better you are at your job, you’re most directly in conflict of interest against your employer.
Thanks this is a helpful response. In a fortunate position where I don't have a material amount of debt and currently no children so safety isn't necessarily a priority for me. I'd say my priorities now are finding a role that's ideally both more engaging (whether that's through looking at higher risk/reward situations or even just faster paced - generally your point on more nimble and octane L/S credit is what's been in the back of my mind as the main place I'd look to exit to if I did move) and allows for higher upside tied to performance.
I'd push back just slightly on your points regarding the sophomore can do what we do, not saying it's wrong but I agree with the other poster that you can generalize that to a lot of active managed strategies which all basically underperform relative to expectations/marketing. Seems like you have a good perspective about that though given your response. I'd say I'm generally trying to be very selective that if I were to move it would need to check the boxes: more interesting work, higher upside, still at least decent culture/people I don't hate being around, etc. Imo this really aligns with the l/s credit HF route but my question would be what could one expect for comp on that side? Totally understand that this is case by case (fund size, # of IPs, path to Partner, etc) but I don't really have any data points beyond some threads here like the 2022 bonus one where the credit/distressed guys with 8-10 years of experience were making ~$1m even in a down year. Obviously there's going to be selection bias (which is evident by the # of responses relative to the prior years) but overall this seems like the credit HF role has not as much downside capture as I thought with higher upside capture. Of course you need to be good and you can always get fired/fund could blow up but would appreciate any clarity if those data points are more the norm vs just the 75th percentile+ outcomes.
think about which 30+ year olds are still posting here - it's bimodal distribution of a) people unhappy with low comp and chasing higher number and b) people with great numbers well above average who want to see how they compare / get confirmation from others that they indeed are great numbers. there's a whole lot of people in middle of distribution for comp who don't care about this stuff anymore once you have family / children / like your 8-6p for mid 6 figures.
Risk/reward is almost always better at pure HF (traditional credit, not Citadel style). Your downside as a senior analyst will be 600+ and upside 1M+. Most single manager type shops don’t just fire people for annual performance, but you could definitely get pushed out if not performing on a longer horizon or blow up on a trade so bad that it starts to threaten the PM’s career. But this is same at a CLO shop. Eventually you are either sponsored by the insiders to get groomed for PM role or start getting treated like office furniture (and ultimately start seeing comp decline - which is senior management’s not-so-subtle cue asking you to arrange your affairs accordingly while you have the chance). The difference is exit options if that happens to you. After 10+ years in that role, CLO skills will have some of the most limited utility among buyside career paths.
How many of the well-known pure-play credit hedge funds have performed well over the last ~10yrs? This seems to ignore the risks associated with your fund shrinking or closing down over time
Asset class performance is a less relevant point when you are weighing CLO vs. credit HF. You still come out ahead through a career cycle positioning yourself as a credit HF investor. But it is a more relevant point if you are weighing between other asset classes, like if you are considering moving into PE, real estate, or equity HFs. Like if you had the opportunity to either join Platinum PE or Viking HF or Silver Point Distressed, what should you do? Probably Platinum or Viking.
If your sole criteria is single firm longevity, then by all means go to big CLO platforms. Literally locked up money, can't really blow it up even if you tried.
What this reasoning misses is that HF analysts' overall careers typically do better even if a specific firm ends up closing down. Where do you think all the Perry, Hutchin Hill, PointState, Highfields, BlueMountain, Anchorage guys are now? They have moved on to private capital platforms, equity HFs, and other surviving credit HFs and are doing just fine. Some of these guys go through multiple blowups in a career, but still come out ahead on cumulative comp vs. CLO career analyst. This goes back to the point of optionality - if your perceived/real skills have more depth and breadth, doors open up so that you can keep applying that skill to other opportunities even if you ended up choosing BlueMountain at some point in your career. So yeah, you're going to inject some vol in your career, but you don't necessarily get paid less on the way down and there are plenty of opportunities to manage your career through the volatility.
This seems pretty speculative. For one - many of those guys (often much older and very senior) enjoyed the golden years of credit funds (where making 2mm+ was routine) before the industry got littered with carcasses all around, so the few coming out a head has little weight on the current state. Another point is I know funds this forum would call "good" that paid a big part of comp in fund carry (think like Glendon style funds) where you got hosed because your phantom "millions" of carry turned out to be near worthless (i.e. just be aware of how comp is structured. Funds like a Goldentree can still pay you significant cash just from the 50-100bp mgmt fees they collect managing majority of their AUM in long SMAs vs. subscale credit HFs or PE-style funds with hurdles).
I know plenty of people who've blown out and struggled to figure out what to do and settled into some job for 300-600k or switched careers. For every successful Antara or Diameter "spin off" of some dead fund (I don't even know where most of the Anchorage people even went, that's still TBD in my mind. And on BlueMountain, I don't even know if Omar has even found a spot yet after so many years?), there's multiples of mid level people who got pushed into some deadbeat private credit role, some super large asset manager/insurer, or joined a start up that hasn't gone anywhere (start up is no fun either - I know a partner at Nut Tree when it was still a 1bn+ "startup" that wasn't making it rain by any means i.e. what I made my 5th year was what he was making, though obvi he has the equity ups as the fund has grown).
Easy to glorify things when you're top of the world making 7 figures at age 30 at a Diameter and ignorant of the what's happening in the surroundings.
But sure yes - CLO analyst is totally different than credit HF career (that is pretty obvious?). but "liquid credit" at MF isn't CLO's, not sure anything in this thread has anything to do with CLOs?
Yes washouts happen in this business, same goes for CLO old timers that hung around the hoop too long with no path above.
Yes MF liquid credit is 80%+ CLO/HY new issue work. At each and every one of the publicly traded MFs. So it is a relevant reference point for OP.
You kind of make my point with your blown up reference cases. “Some large asset manager/insurer” that some unfortunate former HF analysts end up in as a backup plan ARE the shops that OP is currently at (i.e. KKR Credit SF Office, Ares CLO/HY arm, Apollo Global Corporate Credit, etc)
Okay - you're analysis of AMC 1L bonds is super differentiated than some other liquid MF shop. Technically Apollo's hedge fund is "liquid credit", I guess that means spending 80% of your time on new issue? I don't know anyone besides an actual CLO (100*1% positions at par) that spends 80% of their time on new issue?
Don't kid yourself - you're doing the literal same shit 75% of the time and the 25% time you've uptiered someone successfully (or maybe you're Angelo and dealing with getting a little too greedy once a while) isn't all that different. Rights offering math / owning post reorgs isn't complicated, hard, or that sexy either and that's coming from someone that does a bit of all this for a living.
This is really interesting. Do you think there are any tangible differences between a L/S credit, Special Sits platform vs. a CLO / liquid credit platform at a MF other than the occasional uptiers/hairier situations? Or is it as you say broadly the same (maybe with the former taking more concentrated positions and do incrementally more work on a credit) but beyond that largely just a marketing effort by GPs to extract better economics through the L/S platform?
Would really love to hear your thoughts as I am currently in LevFin and thinking about the next move! Thanks again! :)
Just to clarify so there's no misunderstanding in framing the discussion between you and the other poster - generally liquid credit teams at MFs would be characterized as mix of HY/LL through CLOs and some SMAs with a good chunk of new issue (idk if id say 80+% since it depends on the market environment) and secondary work being done for the SMAs. So the analysts on those teams would be covering credits in the CLOs which would be 1% positions and then doing secondary work as well (with higher position sizes in the SMAs)
I'd say Apollo's internal hf isn't the proper comp to keep in mind as that's more like the credit HFs the other poster is citing as alternative paths. So the difference between a credit HF and a group like mine would be somewhat meaningful at least from an outside perspective. This isn't because rights offering math or an uptier or owning post reorg equity is very complex as you pointed out, but more so because credit HFs are likely more concentrated with higher conviction in positions and faster pace. To me this equates to higher responsibility and likely more interesting work given much more secondary focus than new issue. Otherwise think your points are very valid and helpful in aiding in the discussion. Interesting point re: partner at Nut Tree. Obviously that's likely worked out very well for him/her now given the scaling up of the fund but I'm surprised that comp wasn't particularly high even when it was at $1bn aum.
If you're spending 80% of your time on new issue then yeah that'd be pretty close to a CLO analyst. I would've thought a liquid credit role you're spending equal time between secondary / primary at the least and actively turning over your book?
So I'd say that my team in particular is closer to an equal split than 80% new issue (maybe on average 60/40 leaning new issue). Maybe the other poster has experienced differently or has friends at other firms which are much more primary driven. In a year like 2021 where the market is pouring with new issue then yeah it probably hit 80% but a year like this one is the opposite and I've been working pretty much only on secondary ideas. We definitely turn over the book and actively re-underwrite our positions in addition to actively managing the CLOs. That being said it's probably still materially different from a more nimble / concentrated credit HF.
Not sure why you keep trying to steamroll over me on things you don't know much about. I am speaking from experience at a MF liquid credit platform, and I knew all my peers that covered my sector at the top 5 competitors in MF land. They all did the same shit that I did. I have gone through all of the considerations that the OP is. Of course I am biased as you can guess which path I went down, but at least I am speaking from things I know for sure.
Again, MF liquid credit is 70-80% new issue work. 1-2 week turnarounds with early looks - you can do all the smart fundamental diligence you want, but ultimately you are mostly pricing B3 par loans at L+400/99. I'm not hating on it, just calling it what it is. Then do some more work and trade around a bit once things get stressed (mostly swaps and taking position from 50 bps to 75 bps). You will definitely do some workouts but from a defensive 1L perspective with unnatural incentives. It gets more interesting than, say, working at pure CLO like Sound Point because you have the direct lending angle and can occasionally get involved in creative stuff. But that's not the bread & butter of that job and there are some annoying internal politics to navigate branching out to other work.
I don't think you understand the first thing about how Apollo Accord funds get put together - you just gobbled up what they throw out for the media on Bloomberg TOP and Investor Day decks (e.g. Hertz case study). You think there's some really smart guy sitting there that's looking up and down the structure with no constraint and license to deploy capital. Nothing could be further from the truth, except for the top 3 guys sitting above of the whole machination. The career implications for people who actually do the ground work is more complicated than what you see from outside. It's a big machine where everyone is focused on their part of the assembly line, while the institutional design allows for all that intel converge more fluidly at some MF platforms than others. Apollo is certainly one of the better designed ones, but I can assure you the performing credit analyst there is spending at least 70% of their time working on new issues and near-par credits.
It doesn't have to be your classic distressed HF trying to make money owning reorgs and uptier papers. There is a whole host of credit-aware HFs out there that can think creatively across equity, HY/LL, Converts, CDS, structured products, options, privates, liquidations, sovereigns, etc. Could be Abrams, Senator, Elliott, MSD, Route One, Indaba, PIMCO HF, etc. I don't waste my time trying to be smarter on AMC 1L, sounds like maybe that's what you do.
Funny post...that said, I don't buy the whole at 25 year old can do it stick. There is real value in compound learning and just being in the markets for a long time. Investing isn't just modeling out numbers and making random calls. There is some convergence maybe around 10 year of experience, like the 32-35 year old isn't that much off the mark from the 42-45 year old...that said comp probably isn't that different and again the compound knowledge does have value. But to claim that 25 year olds have the same ability as a more senior person is just silly. That said, I do agree that there is a combo of ageism and lack of seats the higher you go, so there is a lot more career risk as you move up if for some reason one needs a new job.
No doubt I agree that you can compound learning as you accumulate experience, which then serves as a competitive moat in your career. My point is that this does not work to your advantage in CLO style investing. This is because the strategy is too diversified for individual analyst contribution to matter that much and the real juice comes from the structural leverage. The learning curve for analyzing new issues and trading some near-par credits is extremely short. So this experience-based career protection works better in other strategies, but my experience has been that the MF liquid credit learning curve tops out within 3 years (usually following ~2 years in lev fin or rx banking). I did not see discernible value-add from anyone through VP-MD unless they transitioned to PM and developed that skill set.
Are you covering all the different funds (long/short, total return, CLO) or are you just stuck doing the CLOs?
If you are investing across the capital structure I have always thought those opportunities are valuable learning experiences. I would continue to stay until the perfect opportunity arises or you are capped out on comp.
I spent 8 years on the sell side as a credit desk analyst and by the end of my stint I had many different opportunities to move to the buyside. Through these opportunities and just having a large client network on the buyside I will tell you if you are working decent hours, have a good team and have the ability to make high 6 figures you are doing very well.
The grass is not always greener. There are very few non PM seats making 7 figures and those that are live with significantly more stress. Those that try to make the move to the multi-strats can hit it big or end up having a career with a revolving door.
I would think the path for you is to stick it out at the current fund until you are topping out on pay and look to lateral to a different fund that has a PM track.
Thank you for the response - very helpful perspective. I'm currently able to work on both the CLOs and also more total return set up as a long only HY and loans strategy where there's a bit more trading involved (not really any long/short) so flexible w.r.t debt instruments but just not equity. I'm generally feeling similar to your point in that I'd likely wait for the right opportunity that checks at least most of the boxes I'm looking for.
Your point on grass not always greener is in large part why I made this thread - I'm not really sure where this role stacks up relative to other opportunities in the liquid credit world (including credit HFs) so I appreciate the insight there.
How does staffing work? Do you work solo or have associates help you?
Bump
Following. Would also like to hear anyone’s perspective on how the learning experience / exit opps compare for An1 / An2 to an equivalent banking job?
Such a skillset is most directly transferable to credit funds. Examples of higher octane firms - Goldentree, Capital Group, Diameter - of which, only one firm is thought to have a good culture. Other possibilities might include Brigade, Sixth Street, Varde, Whitebox, etc.
The job may be more interesting though at mid-level, I believe pay is only marginally higher than MF liquid credit. Only at senior levels is there much higher upside. Up to you whether the bird in hand (your current job, where you're established) is worth the "allure" of these alternatives.
Not going to get that different of a career track / pace at CLO heavy places like Brigade or converts like Whitebox, really need the first group you mentioned
Thought Brigade also has quite a sizable L/S credit HF arm?
I'm sorry for being rude and blunt, but I really don't understand how you're thinking about the world.
Let's lay the facts out as they are - you're making ~500k per year doing a job you're presumably fairly decent at and you don't have to work crazy hours.
Congrats! You've made it! And I don't say this lightly.
You're now wondering what the best comp trajectory is from here since you feel that your upside is limited.
From here on out your comp will only increase with you taking more career risk. What does comp look like at a hedge fund? If you want to make significantly more than what you're making now, you're going to need to accept that your comp won't be anywhere close to guaranteed - it's going to be a function of the PnL you bring in.
No one is going to pay you 2mm/year steady state.
The question really shouldn't be "what jobs have higher comp?" The question should be how much career risk are you willing to tolerate? Are you ok being blown out after a year or two? If you make 1.5mm year 1 at a pod shop and blow out year 2, you're barely ahead of where you are right now, and congrats - you no longer have a job.
You need to start by answering a very simple question - what is your risk tolerance? You're solving for the wrong thing by trying to start with expected comp level and working backwards - expected comp isn't a thing at higher comp numbers, unless you have relationships no one else has. By the tenor of your post, that's not the case for you yet.
Again, I don't mean to be dismissive, but you really have maxed out the W2 train with where you're at now, any increase in comp from here and you're going to need to be very careful and honest with yourself about what level of risk you're ready and able to take.
Good post. I'd add too that most people under estimate personal risk because they don't really believe it will happen to them. So yea you know its a risk but really only think through the upside, don't really factor in the downside, which is very real. Usually there aren't take backs either...so if your career gets derailed its pretty hard to get back on track.
If you’ve been working in sell-side CLO structuring for some time, but lack fundamental credit experience, what are some ways to parlay your CLO experience into a more credit-intensive role? It seems that people regard credit analysts and CLO folks as binary in terms of their qualifications and abilities, but I would think that having an in-depth understanding of CLO structuring could only be an asset to a credit analyst at a CLO platform, albeit aware that this also comes with the opportunity cost of missing experience in credit research.
Potentially a CFA would help?
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