Private Credit -> Public Credit Exits?
In this forum's view, how easy is it to transition from a large private credit platform (think Ares/Golub/GSO) to a public credit hedge fund? By public credit hedge funds, I am thinking of distressed, relative value, Cap structure arbitrage, etc. This transition would be at a junior level (3-5 years of experience)
If the transition is more common from private credit to some specific public strategies over others, any additional color would be much appreciated. Thanks in advance for your help.
I have a few friends at Pine Bridge and Ares working as leveraged loan analysts for CLO funds so here is my 2c. The general perception is that, given that you cover close to 100 names, you don't know the names that well and don't really do the deep dive analysis that is done at a HF. That's not to say you're not smart enough to do that analysis, it's just that you haven't done it. Also, you're generally holding loans to maturity whereas credit HF's are trading events/catalysts. For example let's look at Occidental (OXY) which was junked by Moody's and Fitch last week and has a sizable maturity wall that needs to be refinanced. The bond indentures allows the company to issue secured debt but one of the bonds (I won't say which one) has a far more restrictive negative pledge covenant (only allows co to raise 5% of assets in secured debt). At a HF you might buy that bond in anticipation that it gets tendered or taken out so as to free up secured debt capacity. So you spend a lot more time thinking about game theory and what other players will do compared to a buy and hold CLO guy who dumps a loan when it falls below 90. Again, not saying you can't learn this stuff but the general nature of the work is quite different.
This is accurate but i would say to write off CLO analysts as not knowing the company is more an ego-driven public perception (i.e. Big Short CDO manager scene) than reality. CLO analysts do spend a good bit of time asking Company questions and benefit from following the company for years (i.e. you'll hear the same PGIM CLO analyst on earnings calls for 2-3 yrs), but they may lack an understanding of fundamental drivers that can cause value in a loan to erode which is where a good public credit HF is meant to play. Which is to say, not everything in buying loans is about "company fundamentals seem okay, industry is okay, leverage is 3x, i will hold this for next 5 years" and the name of the game is hyper diversification vs. a good HF will build somewhat concentrated positions in their top picks.
Public-credit HF will be much more focused on the game theory, capital structure arb, bankruptcy and litigation-oriented theses as well as trading in and out of situations fluidly (i.e. buy a loan at 80 sell it at 90 and buy it again 75 to recycle their capital).
Pure CLO shops typically buy at par and hold. The lines blur for certain shops where the analysts manage both HF / CLO names where they might swap out candidates in their CLO book more than other shops.