Multistrategy / distressed credit compensation

Can anyone please discuss how compensation progression generally looks at large cap distressed / multi-strategy credit HFs? 

I have an offer for an analyst seat on the credit research team for a large multistrategy / distressed credit focused fund (10bn+ AuM.)  A majority of the AuM is in high-fee type HF / drawdown vehicles and I would be focused on those vehicles. A firm in the range of firms like Farallon / Silverpoint / Knighthead / Redwood / Monarch / King Street / Sculptor / DK  in a T1 city. 

I'm coming from a private equity associate experience level (2nd buyside seat) so am not clear on what compensation progression really looks like as I have limited friends in industry.  Y1 target compensation is healthy ~400k just curious what go-forward progression looks like as I evaluate the career against continuing to do PE.  I like the nature of the work and I did RX at one point in my career but not clear on #s. I've seen some commentary on credit HFs this forum, but they seem more focused on performing / CLO credit seats.  

Comments (33)

  • Associate 2 in PE - LBOs
Aug 8, 2022 - 12:47am

I mean, bro.

I think a great rule of thumb is you'll make more in an equity seat than credit. PE will net you more than distressed. There isn't much distressed, it's hard to make money, and it's complex and hairy, people are greedy. Sure it's interesting work, but the comp ceiling in equities is always gonna be higher than credit.

Like in credit you're never playing for real upside, distressed isn't that opportunistic anymore. And it's a dying business. In PE, you get to own (good businesses), operate them, and sell them. Not buy shit cos in bankruptcy, waste 8 figures on lawyers to fight in court with 7 other distressed funds, then flip the business for 1.5x MOIC.

If you want something interesting with a better comp ceiling, public mkts my friend. The comp ceiling in distressed (for a sr analyst / partner. If you start now in distressed, maybe you'll reach this level in like over a decade) is maybe maybe maybe $5mm. In public equities, it's many multiples of this. With of exception of this year, hella funds have killed it, and guys got paid. And PE carry will always be higher than distressed.

Trust in carry.

  • Associate 2 in PE - Other
Aug 8, 2022 - 5:24am

I mean, bro.

I think a great rule of thumb is you'll make more in an equity seat than credit. PE will net you more than distressed. There isn't much distressed, it's hard to make money, and it's complex and hairy, people are greedy. Sure it's interesting work, but the comp ceiling in equities is always gonna be higher than credit.

Like in credit you're never playing for real upside, distressed isn't that opportunistic anymore. And it's a dying business. In PE, you get to own (good businesses), operate them, and sell them. Not buy shit cos in bankruptcy, waste 8 figures on lawyers to fight in court with 7 other distressed funds, then flip the business for 1.5x MOIC.

If you want something interesting with a better comp ceiling, public mkts my friend. The comp ceiling in distressed (for a sr analyst / partner. If you start now in distressed, maybe you'll reach this level in like over a decade) is maybe maybe maybe $5mm. In public equities, it's many multiples of this. With of exception of this year, hella funds have killed it, and guys got paid. And PE carry will always be higher than distressed.

Trust in carry.

Thanks. I'm fine without making PE type money, it's more that most info floating around on credit #s is that senior analysts cap out at high six figures 10 years into their careers there.  

So more trying to get a gauge of what this actually could look like at larger shops that mainly encompass non-performing strategies.

  • Investment Analyst in HF - Event
Aug 8, 2022 - 6:01pm

Without more info, I think you can expect to make ~$700K within 5 years and ~$1-2M within 10 years. With caveat on latter being that you have to be progressing within the org (some kind of junior PM seat, sector head, etc) and your firm has to be growing to increase the pie beyond current partners. Otherwise you stall out at $700-900k forever then maybe get "managed out" to a lower tier shop or be a good foot soldier and enjoy your upper middle class life in Westchester County or NJ.

  • Quant in HF - Other
Aug 8, 2022 - 6:01pm

I mean, bro.

I think a great rule of thumb is you'll make more in an equity seat than credit. PE will net you more than distressed. There isn't much distressed, it's hard to make money, and it's complex and hairy, people are greedy. Sure it's interesting work, but the comp ceiling in equities is always gonna be higher than credit.

Like in credit you're never playing for real upside, distressed isn't that opportunistic anymore. And it's a dying business. In PE, you get to own (good businesses), operate them, and sell them. Not buy shit cos in bankruptcy, waste 8 figures on lawyers to fight in court with 7 other distressed funds, then flip the business for 1.5x MOIC.

If you want something interesting with a better comp ceiling, public mkts my friend. The comp ceiling in distressed (for a sr analyst / partner. If you start now in distressed, maybe you'll reach this level in like over a decade) is maybe maybe maybe $5mm. In public equities, it's many multiples of this. With of exception of this year, hella funds have killed it, and guys got paid. And PE carry will always be higher than distressed.

Trust in carry.

I don't think this is entirely accruate. The 5M number you cite is for senior analysts, but partners at these types of funds are making many, many, multiples of that. It is extremely lucrative for partners purely because of points on the AUM.

But these funds tend to have veteran partners that have been there for a long time. It would be silly to expect making partner in 10 years.

Most Helpful
Aug 8, 2022 - 7:11pm
DistressedFund123, what's your opinion? Comment below:

Farallon runs like $1b credit book among a team of like 4 people that are treated as the redheaded stepchild of the firm's strategies, theyre not even close to any of the other firms you listed. Sculptor at least has dedicated $2b credit HF + $2-3b of opportunistic SMA away from the 9b Multi-Strat Master but even they're not like the others.

To answer your question, someone who is not amazing/not horrible/does the analyst "work" should make 400/500/600 at median at age 25/26/27. Add 300-500k more for someone who is actually good / clear path to a strong senior analyst at those ages. No one besides partners are clearing more than 2 bucks on average usually besides maybe some spectacular years / some spectacular single person performance

  • Analyst 1 in IB - PubFin
Aug 9, 2022 - 9:07am

Is there an argument to be made that the next decade for these types of funds generally looks brighter than the past decade? We're entering a period of QT that all things equal should lead to better returns and more opportunities in credit across the board? Curious how people in the industry are thinking about this

  • Associate 1 in IB - Restr
Aug 10, 2022 - 9:12pm

I think that will depend on how long the QT lasts. It's possible if we're in a recession by next year the Fed will start cutting rates again (there's been some commentary out there on a potentially larger shift in Fed strategy around keeping asset values up over letting the market correct itself naturally in a deleveraging as it would historically).

Also think the explosion of private credit will impact liquid distressed strategies (not sure how these strategies will adapt given that private direct lenders are not forced sellers to the same degree and there is a significant lack of publicly-available information on those credits).

Aug 10, 2022 - 11:48pm
Yakehito, what's your opinion? Comment below:

I think I'd rather be on a team of 4 running a multi bn book than one of a many within a firm that has multiple credit teams (stressed/special sits/ABS/other). PE will have hurdles, the credit guys don't. L/S has to outperform an index. You get paid carry annually in credit (and most HFs). You could buy 10% IRR deals in credit and get paid more (and more frequently) than your mate at H&F who got points and is waiting for the fund to materialize. Not sure you're getting the best advice on this thread.

  • Associate 1 in HF - Event
Aug 11, 2022 - 8:42pm

Just wanted to chime in that I work at a well known distressed/opportunistic fund and in a good year (such as 2021) senior associates (ie 3-4 years out of banking but without PnL responsibility) clear well over $1mm inclusive of carry

  • Analyst 1 in PE - LBOs
Aug 11, 2022 - 8:57pm

Do any non partners at these types of funds clear mid 7 figures / low 8 in good years? Would you say there's a ceiling for sr analysts / PMs?

Also how would you compare comp at distressed funds vs L/S (particularly post 2022 given high watermarks for these Tiger Cubs)

Thanks

  • Associate 1 in HF - Event
Aug 28, 2022 - 3:20pm

Think the relevance of partner vs non-partner will vary by firm, but senior analysts here will definitely make those numbers in a good year if they put up the P&L, and I don't think that we pay particularly highly vs competitor firms. General rule of thumb is that the analyst will get 2-5% of total gross dollars of P&L (or 10-25% of the incentive fees on that P&L), assuming the rest of the book didn't blow up.

You can do the math--if a firm manages $5bn of (invested) discretionary high-fee capital and makes a 1.3x MOIC ($1.5bn profit) in a good year, if you assume 8 analysts that would be ~$4-9mm per head. Presumably the hitters are taking more and the laggards less, though if the PM takes a long-term view and there are some reasonable explanations for the laggards, the laggards might get a higher share of their P&L as comp, with the winners subsidizing on a percentage basis.

I would note though that 5% of P&L is (at least to my knowledge) unusually high. Additionally, most distressed and special situations funds still operating in 2022 have a sizeable share of their high-fee AUM in PE-style drawdown funds where you will generally be targeting IRR (sometimes to the detriment of dollar P&L) and you will not be (close to) fully invested potentially for multiple years if the credit markets are tight and there is little to do. 

To answer your other questions, there is definitely no ceiling on PM compensation; I think most PMs will contractually take home a share of profit. Theoretically there shouldn't be on analyst comp either, but it is probably the case that that percentage of his or her P&L that an analyst will get paid will go down as the total number goes up, just because the GP or PM has the leverage in that negotiation.

I can't speak to comp at L/S equity funds other than to make the obvious observation that comp will be constrained when you are 50% below your high water mark.

  • Analyst 3+ in PE - Other
Aug 28, 2022 - 6:57pm

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