L/S Credit Hedge Fund - Case Study
Hi WSO,
Could anyone please shed some light on what to expect for a 4-6 hours in-house case study for a L/S Credit Hedge Fund (can do anything from bonds to options and equity - have HF and drawdown capital)?
Have heard / read previously that you get a blank excel, some 10K/Qs and need to build a model, potentially short ppt and have an investment thesis. Any suggestions or tips here would be much appreciated.
Finally, how do I think about unlevered returns here? Understand these types of funds can trade in-and-out quite quickly so not sure if the right approach is finding a decent piece with L+350-500 at 90 and calculating YT2 take-out at par (i.e. 10%+ unlevered yield)
Bonus: Is there a good way to find what are “hot” credits that are being invested in by credit HFs? Just to get an idea of what types parameters to look for, and also to practice on those names.
Note I am coming from a illiquid special sits background so the public angle is quite new to me.
Thanks very much
All is through a relative value lens, mark where HY / IG is trading and rec against that (ie; x security trades wider than HY index, this is why I think it will converge).
You likely will be asked to look at a company that has a mix of unsecured, secured, and equity and be asked to make a rec on going long / short on securities in the cap stack.
Lastly, can’t go short term loans, which I found out in a case presentation lol.
Thanks - mind expanding on this a little? Am coming from illiquid/private background so not fully clear to me.
Are you basically pulling loan comps for similar industry/leverage and comparing the yield - and then making a thesis of why chosen credit should yield more/less and suggest the appropriate trade? Or are you looking at some index to short-cut and not need to pull comps? Which indices should I refer to / how to pick appropriate ones?
Is the analysis still - do I think this piece of paper gets repaid at par at or before maturity (i.e. will go to par at some point) or I think this will trade down because of XYZ?
What’s the typical hold of these funds?
You can absolutely short term loans, but not all funds are set up to do so.
What do you tend to use to short in the HY / Distressed space? CDS or cash? If shorting through cash bonds / TLs how do you go about shorting illiquids?
Without failing, enlighten me how you go about shorting a term loan now that LCDS is gone
@Delphi your username is so fitting!
https://www.forbes.com/2009/12/07/icahn-goldman-lawsuit-business-wall-s…
https://www.forbes.com/2009/10/14/goldman-icahn-delphi-business-finance…
I cover equity but in my HF we do also HY & convertible bonds.
On the convert side it would be useful to have an understanding of how to price the embedded option (implied vol, premium, etc.). It was hot in 2020-21 and dead in 2022 (usually converts are issued by tech small & mid caps) and lately there have been new issuances.
Anyone else any insights? How long to spend on each part (e.g. model, reading, returns, …) and how to best approach model?
Also if anyone could guide me towards resources to see what kind of bonds / loans hedge funds are trading (to get a better idea of topical names etc)? 13f filings only seem to show a small sub-set and 99% are US names.. thanks
Did you ever get any info about that? Would love to know as well
bump
Hi - hope it went well for you!
Would you be open to sharing the case study?
Thanks!
Would you care to share what was required? A high level explanation will do
Would love to hear about your case process.
i swap these so PM me if you wish to swap
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