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.
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.
This is hilarious and did not age well. “I mean bro…it’s a dying business.” How is that car wash rollup looking with L (zero) + 400 cost of capital?
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
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.
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
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.
I feel like distressed is either something you absolutely love or detest. Most guys in it that do well genuinely seem like they would not enjoy vanilla PE.