Ask a credit H/F analyst anything, just trying to help
Hey everyone, I've been at my current firm for a year now, and I wanted to take the time to help anyone on this forum who might be interested in credit HFs (just to kinda give back yknow). We do all sorts of fixed income related work, and I focus on distressed credit as well as general l/s credit. For some background about me, I went to a solid target (not H/W), had a 3.8-4.0 GPA and decent ECs + past internships but nothing out of the ordinary. Was fortunate enough to get offers in both top l/s equities HFs and credit HFs.
Happy to share more details about the recruitment process, what these firms usually look for, differences between equity and FI (though I never worked in equity, but I have many friends who do) and what the day-to-day/life of the job is like. Just tryna help everyone out because I know the process is tough.
This was actually a bit of a hard choice, as many tend to view l/s equities as the "end goal" of finance, and the equity space is generally more popular. It's also definitely true that the top HFs in equities that recruit undergrad have really good brand names (like citadel, pt72, etc), whereas the credit ones are probably a little bit more under the radar even if they're similar calibre. I think my decision came down to a few points:
1. I thought that the credit markets had more room for true analysis as opposed to speculation. The stock market is interesting: while there's definitely work that one can do to predict a stock's future, you'll notice that even firms like Citadel are only right something like 55% of the time, and the reason is because there are so many speculators in the market that luck plays a huge role. I hated the idea that I could spend hours/days on a single pitch, ace everything from an analytical perspective, and still have the stock go down because some jackasses got scared. Comparatively, fixed income research and analysis is more grounded and mathematical, and it really does feel like if you have a better strategy/algorithm/analysis, then you will outperform the market.
2. I'm also really interested in the distressed space. I recruited for rx primarily when I was still applying for banking, and had offers from EBs doing rx (not PJT/HL unfortunately, I prob would've chosen these two over any other offer). This really got me into the distressed space, where you probably need a bit more of a background in debt to do well in. Why am I interested in this? One, because I felt that the distressed space had inherently more inefficiencies, and so it gave the skilled investor even more chances to succeed. Two, because I found the work to be more dynamic and variable (this is actually only partially true given benefit of hindsight, but still much better than equities or vanilla credit); in equities, you're learning about different companies, but the process is very similar and there is very rarely anything interesting. Distressed space paves way for more possibilities because each situation is super different. Three, it also gave me a more differentiated skill set than my peers--doing credit (particularly distressed) also allows me to do well in equities I think, because I still have to learn all the components of what makes a good company.
3. There's definitely an element of job security to be said--I think while equity HFs can have really high upper limits in terms of comp, the expected value/average is prob slightly lower than FI just because underperformance in equity can really damage you, whereas credit is much more secure. Of course, this doesn't mean that you can fuck up in credit and still get paid a shit ton--I just think that since probably 50-60% of the work I do is modelling and math/algorithms, it's generally harder to be that wrong.
There are a million distressed analysts out there and if anything the skillset of your typical high yield credit analyst has also expanded to include 101 restructuring/workout fluency; the way you described the setup is a very ~pre-2015 take (generalizing, nothing specific about that year). I think this is an extremely difficult market to argue you have some analytical edge against the marginal buyer / seller. Everyone has access to all the filings, expert networks are accessible, Reorg reduced the legal / process barrier to entry to near zero, and legal and financial advisors will take information calls with you all day...what exactly do you have that others don't? Not trying to damper your spirits, but the distressed market is great at humbling people pretty quickly...watch the market blow through your downside price in a single trading session. You've been at your firm for a year so I don't think you were even around for the initial covid shock...the true distressed opportunity set lasted for only several weeks, the rest were just bad businesses. I'm saying this as someone in a distressed seat. There are maybe 1 or 2 true distressed situations worth getting truly excited about per year. Most of the game is just about not getting blown up on something that had a million red flags going into it. I'd actually argue that most people get blown up in distressed because they actually did not have a great understanding of how a business works and actually generates cash flow. The majority of things actually end up in bankruptcy or needing new money due to working capital problems which I think is immensely under appreciated.
How much do you weigh
200 kilos, give or take
As someone who has been doing this for a decade, there's a lot of naivety in this thread. The reply above talking about distressed being a mostly efficient market with many underestimated bad businesses (i.e. poor investor judgement of the qualitative) is mostly accurate.
Not sure what math or algos you're doing unless you're maybe at Whitebox type place that does a lot of relval trading, very few fundamental L/S funds do that type of stuff unless you're sitting on the structured products side (where securities trade in spread relationships instead of recovery basis). Also have no idea what it means to track "thousands of companies and refresh on waterfalls" lol.