- semi-target undergrad in TX
- Past experience includes turnaround (Deloitte CRG), restructuring (HL RX), valuation, PE (Multi-billion MFO), and now a flexible, opportunistic credit strategy for 6 years. Started as an associate.
- writing checks of $10-$50M across the capital structure from first lien to common equity
- focused on sponsored deals but evaluate nonsponsor deals opportunistically. Primarily LBO but will evaluate growth capital and refinancings
Happy to answer questions about recruiting, experience, deals, outlook, asset classes. Anything really- I’m here to help however I can.
SZ
What is the recruiting process like for associates at your fund? I know the PE recruiting process is very structured through on-cycle and there are a lot of resources on WSO for PE recruiting but not PC. Thanks!
In the MF's with PE and PC arms, recruiting for each can go in tandem, so basically rampsyou start banking. In my experience, PC recruiting is less structured vs PE and much less focused on cycle.
I think PE firms are getting there, but seems like a larger share of PC funds are willing to hire analysts straight out of undergrad.
As far as steps of the process go, they are similar: phone screen, model & case study, case study discussion, meetings with senior folks, potentially more meetings, then offer and hiring terms discussion.
Hope this helps, lmk if I can help further
Did you ever think about doing stressed/opportunistic credit/hybrid capital/special sits type investing given your RX background? How do you feel about competitive differentiation, potential fee compression, aggressive terms coming back in more down the fairway private credit given huge influx of capital from all types of players? I'm in sponsor finance and have been trying to make the move to something more opportunistic.
I interviewed at a couple distressed debt and turnaround shops after HL. Definitely more interesting in some ways but I was burnt out on the RX lifestyle and the distressed world would be a continuation of that. Not to mention, I was sick of everyone being pissed off on both sides of every deal while lawyers put a hair dryer to a melting ice cube with their fees.
Our fund is more opportunistic vs direct lending. We can do almost any structure as long as it hits our 1.5x-ish MOIC target and mid teens return. No back leverage, although we are exploring a sleeve of this.
Your points on competition are surely valid. But we aren’t doing bake off and filling out term grids. We have a handful of sponsors we like to work with and will lean in for them when we need to, especially on the mezz deals or hairier ones. We also have the ability to be very creative with structure, where a lot of directs don’t.
On a related note, i think there are lots of cash flow problems out there right now and borrowers are hoping rates come down to save their bacon
Edit: One more note on competitive differentiation, I think it's getting increasingly hard for the directs to differentiate themselves (they are racing to the bottom and just playing an AUM game now). Terms got more aggressive in Q4 but i think there are alot of shops battling big problems still, which should quell some terms competition until rates are lower for longer. Fee compression has already happened in this space, but I think the 1.25-1.5% management fee is safe on niche strategies (and smaller funds).
Long time, first time. Joining HL in a different group as AN1 out of school. Any precedent for moving/recruiting into RX within the firm after first 2 years if I elect to stay with HL? Interested in RX in general, but heard mixed reviews on if this is possible or encouraged. Thanks.
Congrats on the gig, first off. I’ll be frank, i think it’s unlikely unless there are staffing scarcities at play. Folks don’t want to ruffle feathers internally and there is no upside for them. Who knows I’m sure it’s done thoigh
Thanks for your thoughts. In line with what I've heard. I'll give it a shot when the time comes, but it's nice to keep realistic expectations.
My followup advice: You are going to go to training for 2-4 weeks ( I cant remember) with your entire HL class. Use this time to network as much as possible with the RX guys and folks outside of your office. You will have 2 years to network within your own group/ office. Leverage this network you build in training and put a few (low-key) feelers out so peeps can let you know when analysts leave.
Even better, if your office has an RX group... Find those analysts and make buddies with em. Keep in touch with them, get lunch etc. This opens the pathway to them relaying to you if HL analysts drop out and they're looking for an off-cycle hire.
Lastly, HR isn't good for shit typically, but wouldn't hurt to drop a line to them? Risky since IMO the only thing HR is good for is firing people and "investigating".
Good luck!
What kind of backgrounds are you looking for when you hire associates? Is it mainly LevFin/Restructuring bankers or do you also consider sector bankers?
LevFin and restructuring typically have a head start over folks from industry groups. And no offense to the LevFin guys, but IMO RX has a huge leg up in understanding credit agreements, capital structures, complex transactions. This allows much wider exit opps in the credit space (direct lending, junior capital, structured, special sits/ distressed). My one warning to those going into distressed from RX is be prepared for the same pissy vibes and "get it done asap then wait" from all parties on distressed deals. These are the main reasons I left the distressed world. Too much experience with bad actors and people that I could never look up to as role models. This perspective can't be understated IMO.
LevFin guys are typically just slinging 1L debt capital, but are more in touch with the capital markets, the financing process, and managing a bunch of relationships. LevFin guys do get credit for exiting to a vanilla direct lending strategy, given the overlap in LBO experience.
We will certainly consider sector bankers, but they need to do their homework. If you know your way around a credit agreement and are willing to do some research, you can be well prepared, especially for an entry tole. Just know how to make an operating model, an LBO, how to model credit returns, and pros/cons of each piece in the cap structure.
This was super insightful thank you very much! Just one more question.
What would make a sector banker a strong candidate given the lack of understanding of credit vs a RX/LevFin guy? As you make it sound RX bankers will pretty much always get the role given the depth of understanding. Is it a specific trackrecord in sponsor deals or sector knowledge that makes them more desirable?
What do you think of the current debt environment? For private credit business, I’m sure this is great but is there any concern over the long term regarding the growing corporate debt in higher rate environments, stagnation in PE and potential inflation rebounds due to deglobalization?
The last 18 months have seen very tight financing conditions. Even alot of the big directs have been risk off and "auto-no" cyclicals like building products, industrials, consumer-related, chemicals, etc. We have been able to capitalize this and get some juicy fixed paper out the door (13-15% mezz with anywhere from 7-10% cash and PIK toggle on the rest). However, things have really opened up since December. Seeing 6x leverage reads on 20-30% margin businesses with semi-cyclical industries again, junior capital attaching at 4.5-4.75x.
On the macro part of your question, I don't the understand the rush for a rate cut. With inflation hitting target at current rates and economic data still strong, makes no sense IMO to make immediate 3 cuts. Maybe could justify 2. Seeing the irrational exuberance in Q4 is disturbing and I think a fast-track to stubborn inflation. Who knows, I'm just a fkin credit guy!
That being said, I think there are a LOT of problems (esp in healthcare) out there right now. Lot of LBO portcos that are holding on to a few more quarters of liquidity at these high rates, praying for aggressive cuts. Many lenders will be unwilling to amend and extend the same loans that were amended and extended during covid, but they are actually stressed over the long-term now vs the quick down and up in COVID. There are several big direct lenders that are dealing with many serious problems right now that nobody is talking about. Similarly, they are praying for aggressive rate cuts as well so they dont have to start workouts and marking losses on the books. Not to mention defaulting on the NAV credit facilities!
I still think private credit is the most attractive asset class out there on a risk/ return basis right now. I think many folks are under the false impression that rate cuts means going back to bumping up against 100bps base rate floors, but I think SFOR is here to stay more in the 4.5-5%. Lot of the mediocre PE managers can't squeak it out in that environment.
Following on someone else’s post above: do you look at corporate banking backgrounds?
Yes, we will consider corporate banking folks if they know how to model and how to conduct actual diligence (not ABL-level diligence). It also greatly depends on the shop. We have a few commercial banks we work with that operate more like direct lenders. Vs other commercial banks in the area that often make me wonder how they still exist. Lost of commercial banks are still very risk off due to lingering effects from the recent banking crisis.
What’s comp / hours like for you at your fund? Strongly considering PC from an Rx background for many of the reasons you have stated. I am getting very burnt out on the Rx culture, but admittedly the money is quite good. Would be very interested to hear your thoughts.
Hours vary quite a bit and are deal-based. Typically 45-50, can be as low as 35-40 when deal volume dries up. But can quickly ramp to 70-80 if their is a hot timeline (I lead diligence and execution for our team).
I feel you on the culture. Found myself ashamed of the folks I was dealing with and was just fkin grinding 80-100 hours a week as a junior. No doubt the comp is great, esp if you're in a good group. Really happy I made the hop to my group, everybody "gets it", has kids, no facetime, doesn't believe in grinding unnecessarily and no arbitrary timelines. Senior folks are great.
My comp definitely not near MF levels, but I've been happy and really enjoy the group. However, starting to feel like I'm being pretty undercomped.
salary progression (bonus is 100% of salary):
Associate: $125/130/135 I think. 4% carry, coinvest across all funds
VP: $165/$175/$190. 5% carry, coinvest
Principal: $220 TBD on carry
Hope this helps. Depending how senior you are in RX, might be hard to find better comp outside of MFs
How much carry can reasonably build up before it actually starts to vest? Curious because I know it’s not as lucrative as PE carry and your cash comp does seem low given your experience. I’m a senior associate for a vanilla LBO direct lender (NYC) and comp is higher than the highest VP tier you listed
What is the lifestyle like at your level? How long does it take to move between the levels?
Lifestyle is tough at Associate but better than banking. VP is improving, less bullshit. Principal is pretty nice but tbh I hate "having to play the game" and kissing ass.
Why is lifestyle tough at the ASO level?
On the Deloitte turnaround experience - what did you learn during it, how valuable was the experience overall, how well does it prep you for current role / is the move doable from there?
Cheers
It was turnaround consulting, so on site at a client, 13 week cash flows and cash management, managing creditors and vendors, all CRO type work. I’d say it was beneficial in learning how a turnaround works on the company side, the different levers to pull to save liquidity etc. but not my cup of tea- peak bad vibes, constant travel, trying to “save liquidity” but charging the company $300-$500k a month.
Overall a pretty different role from RX banking, but you do work with advisors a lot. I think turnaround operators are more apt if you want to be CEO or go into a distressed PE shop. But surprisingly limited similarities to RX work.
The hop from turnaround to RX or distressed is definitely doable, but I think the hop to distressed PE or a CRO gun for hire is most applicable. You can make a good living being a stand-alone CRO, and you don’t even have to travel full time now
Is it a stepping stone into opportunistic credit after?
Thanks for doing this, a few ones from me:
How have you seen competition change since you started at your firm? Feels like a new private credit lender pops up every week.
How have you seen deal / transaction mix change since pre-COVID, COVID period, and then 2022-203? Has there been a shift towards more senior secured, vanilla type lending or have you been able to keep a good mix of junior capital as well?
Could you speak at all towards backgrounds outside of RX/LevFin moving into PC? Specifically I will be interning in Credit Risk at a GS/MS/JPM this summer & just thinking about what sort of opportunities I would have (if any) in the credit space—have read it’s potentially possible depending on the experience I get.
Risk dept seems more like a "check the box" back office role to me, but I may be wrong. As long as you're doing diligence, portfolio testing, you can probably transition to a PC role. Try to get familiar with investment pros/cons, credit agreement terms, how to navigate a credit agreement, how to think like an investor. Definitely possible, and as I said above: all it takes is one!
Thank you for doing this. Do you have any advice for someone interested in moving from buy-side non-IG research to opportunistic private credit. Is this move possible early on (pre-associate)? What skillset deficiencies would have to be addressed?
Pre-associate, anything is possible. Depends on what type of research you are doing and if it's a well-known provider. I don't see why you couldn't, but would take some networking. I repeat, never lose hope: All it takes is one!
This early in your career, there aren't too many skillsets needed and they rely mainly on:
Thanks, appreciate the insight.
Any advice on breaking into PC from M&A IB? Have a background in investment management prior as well (sovereign wealth fund, insurance company work and fixed income analysis in another life).
What’s your view of Whitehorse Capital? Saw they were hiring recently but concerned because I heard they have terrible work and life balance.
Any tips on sourcing? Fellow new Principal here being pushed to source with very limited other support from seniors/the firm. Any advice outside of cold emailing/tapping networks?
Hey thanks for doing this. I wanted to ask if you guys look at traders from credit/structuring desks at all or is LevFin/RX a must have?
Any views on closed-ended fund vs open-ended PC funds in terms of economics and the types of deals you'd do (i.e. preferring deals with cash yield?)
Hi OP, thank you for doing this! Do you have any advice for moving from valuation to private credit, especially at the associate level and beyond? How well has your valuation experience prepared you for the current job? What do you think is the best path to private credit, should I look for levfin / corporate finance opportunities, or an MBA?
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