Private Credit Workouts Role
There's not much discussion on here regarding the workouts group at a private credit shop. I understand what the role is, but does anyone have a view on how easy it is to transfer into an investment seat from this position?
The role I'm considering isn't purely a passive situation in that you wait for distress to occur with a portfolio company. It's being sold to me that there's opportunity actively identify areas to generate alpha/deploy capital in those portco's as well. My fear is that these roles are view more so as a risk management position and I become stuck and unable to move to an investment seat.
I recently left RX consulting to a role like you’re describing. Bottom line in my view is your taking a bit of risk here on what the groups actual mandate is vs. how it is represented.
One thing that gave me confidence in making my decision was understanding my group head’s relationships with the IC and other key decision makers. If the powers that be at your prospective fund believe in your group head (and group’s) ability to create value it will skew toward more strategic investing in distress, follow-on M&A, value creation efforts, etc.
A track record goes in tandem with this: has the group successfully turned what would have been losses or bad loans into positive IRR outcomes? If so you’re likely in good shape for having the ability to get the investing and modeling experience you’re after.
Finally I would add it’s important to understand if there is also a separate portfolio management or similar group at the fund. If yes, again, it’s more likely your have the opportunity to focus on being more tactical vs. general portfolio management/risk responsibilities.
Very helpful commentary here. I am currently in an RX consulting role myself, have around 2 years of experience. How much time did you spend doing RX work before interviewing/taking a position like the one described?
How is WLB & comp?
Thanks for the reply, very helpful. A few questions for you.
During your interview process, how were you able to sus out whether the group head actually had the confidence of the IC/key players when it came to investment decisions? (vs being sold on something that's not necessarily true).
In your role now, how much time do you spend between monitoring credits/managing risk vs idea generation/strategic efforts?
Are you looking to use this experience to ultimately jump into a investment seat?
During the interview process I asked about previous situations the group had been involved in. Deals that involve new money in a restructuring, taking equity stakes, or value creation plans (in my view) would require quite a bit of confidence from IC. The last thing these guys want to do is go back to investors and tell them they lost more money on a shit loan.
I’m still new in the seat so difficult to give a % split but have certainly been involved looking into several strategic efforts in addition to more general monitoring of credits.
Again newer in the seat so not looking to exit but folks have left to more traditional roles in the past so I believe it would be an option.
I'm in discussions with some people about what sounds like an identical role at one of the top PC shops. Bumping the above question, how much time do you spend between monitoring credits/managing risk vs idea generation/strategic efforts? How do hours compare to a traditional deal team seat? I assume there are periods where it is lower, and periods where it is higher due to restructuring & court deadlines, but I am looking for a general expectation for the two periods. Would you say the hours are relatively predictable because you have a couple quarters of seeing a credit steadily going down the gutter?
Last, considering the seat is arguably more intense and requires a deeper company analysis + involvement than a direct lending deal team seat, would you say you get compensated appropriately given the level of responsibility? If you don't mind sharing, how is the comp structure set up and what would be an expected annual bonus range considering the role's intensity (I assume) is counter-cyclical? I appreciate any insight.
I’m going to caveat the following that this really depends shop to shop.
My gut (no direct knowledge) tells me that the major private credit players actually have less flexibility with these teams but I’ll leave that for you to discern through you interview process. I could certainly be wrong.
In my experience vast majority of time is spent on strategic stuff/value creation. My group looks and feels a lot like turnaround PE investing. That said we have to do traditional quarterly valuation type stuff that all shops have to do. We manage this process for our “book” rather than the standard portfolio management team that would handle this for the healthy book. Can make the job feel like double duty sometimes but it’s not too time consuming and I believe part of the process for most junior folks in MM PE seats as well.
Hours are worse than traditional DL, but ultimately a function of how many deals / what stages they’re in. Every shop transitions deals to this type of group differently but yes you can typically see new mandates coming / hear about the dogs in the existing portfolio that will belong to you soon. When things are slower I’d say 60 hrs a week ramping to full deal sprint level (80+) for urgent things (court processes, add ons etc). Again a function of how many deals you’re on as the more steady state stuff does not shut down because of a process on a different deal.
Comp at my level is base + bonus. Think roughly MM PE comp at the associate level. I think this is fair and about as rich as I would expect, but we work hard. Again this varies shop to shop depending on value creation and how stressed the portfolio is, etc. there are a lot of different bonus structures but I think generally firms think about improvement to quarterly/ annual marks from when the team takes over the deal and pay bonuses based on that. This can take time to materialize of course.
I can add some color here, I was in a similar seat.
how much time do you spend between monitoring credits/managing risk vs idea generation/strategic efforts?
How do hours compare to a traditional deal team seat? I assume there are periods where it is lower, and periods where it is higher due to restructuring & court deadlines, but I am looking for a general expectation for the two periods.
Would you say the hours are relatively predictable because you have a couple quarters of seeing a credit steadily going down the gutter?
Comp wise, we were paid the same base as the deal team but had bonuses that were 10-20% smaller than the deal team. I have heard that it varies by year and some years the PM team makes more.
The seat is highly dependent on the strategy you're working with. Doing boring valuations and normal pm work while anything hairly gets handed to the deal team isn't great (brightwood's PM for example is set up this way). If your team gets to get their hands dirty, then a PM seat can be a very good place to learn both the technical side, but more importantly the personal side of investing. Having to sit across from board members and operators and advocate / fight for your firms rights and position is a very humbling and scary experience, but you end up more comfortable being uncomfortable than others and I feel like my time as a PM has made me better at discerning good from bad as an investor.
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