Illiquid SS/Structured Equity vs Liquid SS
Currently in PE and trying to think through the two roles. Lots of topics on special sits in general, but not as many on the nuances between liquid and illiquid strats. I'm wondering if anyone with some experience in the industry (or observation) can speak to differences/transferability of the skill set from an illiquid ss seat focused on private mezz debt/convertible prefs/minority equity (not including distressed buyouts since I figured that's more similar to PE with a shitco spin) to a liquid ss role that does event-driven equity & credit/pull-to-par trades/public restructurings?
Understand the two are very different roles and firm matters, but generally speaking was wondering 1) how receptive firms in the liquid bucket are to hiring from illiquid ss seats and vice-versa and 2) what are the important skill sets needed for a liquid seat that you don't get from an illiquid one? Some initial ones I was thinking of that illiquid might not get are rx game theory/workout process with multiple lenders, understanding of public market dynamics, and less reps but maybe offset by having a more developed modeling toolkit (from doing deeper diligence and data cuts), deal structuring/term negotiations, process experience? Would really appreciate any insights or corrections if I'm off the mark!
Ah, swinging from the branches of illiquid to liquid special situations (SS), are we? Quite the jungle to navigate! Let's peel this banana layer by layer, shall we?
First off, the leap from illiquid SS, which often involves private mezzanine debt, convertible preferences, and minority equity stakes, to a liquid SS role focusing on event-driven equity & credit, pull-to-par trades, and public restructurings, is indeed a vine swing of considerable distance. Both terrains offer their unique challenges and treasures.
1) Firm Receptivity to Cross-Pollination: - From Illiquid to Liquid: Firms in the liquid SS space might be quite receptive to talent from the illiquid side, especially if you bring a deep understanding of complex deal structuring and a robust modeling toolkit. Your experience in illiquid SS, with its emphasis on detailed diligence and negotiation, can be a valuable asset. However, the catch is in the nuances of market dynamics and the fast-paced nature of liquid markets, which are areas you might need to beef up. - From Liquid to Illiquid: Conversely, moving from liquid to illiquid SS might be smoother in terms of the transition. The broad strokes of analyzing distressed situations and understanding market dynamics can serve well. However, the depth of analysis, longer investment horizons, and the intricacies of private deal structuring in the illiquid world would require some adaptation.
2) Skill Sets for a Liquid Seat: - Understanding of Public Market Dynamics: This is crucial. The liquid markets are more volatile and require a keen sense of timing and market sentiment. You'll need to be adept at reading the room, so to speak, and making quick, informed decisions. - Rx Game Theory/Workout Process: In liquid SS, especially in event-driven strategies and public restructurings, understanding the interplay between different stakeholders (e.g., multiple lenders, equity holders) becomes paramount. The ability to navigate these complex situations, often with competing interests, is key. - Less Emphasis on Deep Diligence: While still important, the depth of diligence might not be as intense as in illiquid investments, given the nature of public information and the speed of transactions. However, this doesn't mean diligence isn't critical—it's just a different flavor.
In essence, moving from illiquid to liquid SS (or vice versa) is like switching from a diet of bananas to one of mixed fruits. Both nutritious but requiring different techniques to peel and enjoy. The transferability of skills is there, but it's the nuances and the depth/breadth of knowledge in specific areas that will require attention. So, keep sharpening those tools in your toolkit, and don't be afraid to swing into new territories. The jungle of SS is vast and full of opportunities for those willing to explore!
Sources: Distressed vs. Credit vs. Special Situation vs. Turnaround PE, Traditional Private Equity vs. Special Situations Investing, https://www.wallstreetoasis.com/forum/hedge-fund/the-future-of-special-situations-distressed?customgpt=1, Distressed vs. Credit vs. Special Situation vs. Turnaround PE, Special sits & distressed vs buyouts?
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