At the large multistrat managers in the credit space, are sovereign credit plays made by a distressed team, or do they hire a team that specializes specifically in sov cred. Curious if distressed/sov cred is considered an overlapping skillset or if funds bring in people specialized in it (imagine a team of more macro credit oriented guys + IMF economist would do well).
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Based on the most helpful WSO content, sovereign credit strategies at large multi-strategy managers like Elliott or Davidson Kempner are typically handled by teams that specialize in sovereign credit. While there is some overlap in skill sets between distressed credit and sovereign credit investing, they are distinct disciplines that often require different expertise.
Distressed Credit:
Sovereign Credit:
In practice, a fund might have a dedicated sovereign credit team that works alongside the distressed team, especially in larger funds where there is a capacity to support specialized teams. These teams would likely include individuals with a strong understanding of macroeconomic trends, international finance, and political risk analysis. This specialization allows the fund to better navigate the complexities of sovereign debt markets and make more informed investment decisions.
Sources: Credit - Pod Shop/MM vs. Distressed/Special Sits HF, Top firms for distressed investing. Solving for brand and deal experience more than ability to growth within the organization., Q&A: Credit Analyst (Multi-Strat Credit Fund) >$5bn Fund, Distressed vs. Credit vs. Special Situation vs. Turnaround PE, Q&A: Currently at a Credit Hedge Fund
in the worse places, it’s done by the standard distressed credit guys who think they are the smartest in the room but invariably fuck it up.
in the better places, it is done more by the types you reference who have relevant experience and can actually do a proper DSA etc.
100%. I recall one time being on a group call for an unnamed oil exporter when a (fiscal) breakeven was noted as being in the 90s while current oil price was in the 70s and this distressed sovereign “tourist” kept asking why they would pump any oil if it cost them $90 to get out of the ground?
Also never forget circa 2016-17 when they’d lay out a table of econ indicators and suggest Argentina could “become” Mexico in a few years.
Seriously though there is some legal/doc arbitrage advantage they bring but I think more than offset by lack of sovereign credit expertise. Different animal bc no equity (in general so ignoring warrants here) so they don’t even at the cap structure arb expertise in a major way.
yeah they bring not much beyond the ego
It is interesting how common it is that places will have someone cover corporates and sovereigns in EM without batting an eye. Not exactly the same but imagine saying hey you’ll cover rates and US IG or you’ll cover munis and structured products.
so if you wanted to explore EM sovereign credit more in an investing role where would be a good path to start? I have a macro/stats background from undergrad, but curious if something like rx ib --> distressed HF --> become a sov cred specialist is viable? Or do these people come from trading CDX on sell-side S&T desks or IMF economists?
I read some IMF whitepapers and it seems like DSA analysis isn't necessarily quantitative. Curious if this is too foreign of a skillset to pivot into from rx ib.
Can think of a lot of stuff better than rx ib
- imf/ifi research
- min fin/central bank research
- s&t jr trader or desk analyst
- rating agency sov jr analyst
- buyside jr analyst for emerging market debt fund focused on sovereigns
- country risk group bank jr analyst
- econ consultancy jr analyst
DSA is not very quantitative agree but it is like Greek for someone with a corporate investing background. And just bc one can understand the formulas doesn’t mean you’ll be able to come up with thoughtful inputs
so would doors close for this asset class going to rx ib?
read a few papers, agree the intuition + modeling is different. but I'm sure it could get picked up w/ 2-3 years of voracious reading and testing some theses right?
Certainly not closed as noted above this path has worked for some. Just becomes a harder sell for the job. Same with the modeling portion.
Are you in RX now? Why not pivot out? Or do you have an offer now? Why Rx?
I get that is is hard to get a seat even at jr level in sovereigns but you have the skillset- well maybe minus the Econ, but that matters less at a jr level.
if you pivot while young you can get away with the did Rx learned some stuff/discovered sovs etc. harder pitch after 2 years Rx and 3 years classic distressed and at that point will you be willing to take what would prob be a pay cut? (Can’t assume the distressed fund you’re at will do sovereigns)
i'm a prospect, here's my thought process curious to hear if you think my heads in the right place:
actually started ugrad thnking of rates/fx trading but leaning towards finding asset classes that have some degree of legal arb or where some central gov/large institution creates an arb (for sovs, obviously foreign institutions are gonna have to intervene (IMF) which presents arbs). Shifting away from anything public markets related that involves "predicitng the future" in a braod sense (like equities, macro) because how do you know you're not just lucky. This makes me think anything distressed would be a good fit.
Ideally, I would combine a distressed toolkit + an appreciation for macro, which makes me think sov credit is a good fit. Right now I'm thinking Rx IB because I could get exits to credit HFs right away, and have that to fall back on if I cant get a seat doing sov credit specifically. I also have no clue what other analyst roles would prepare well other than going for an Econ PhD, which is honestly not in the cards for me. I don't have the credentials to get into a top ranked school. I can code, do stats, and metrics, but modern day economics requires theoretical mathematics, which is not my background. To describe my education, its a large mix of history, economcis, statistics, and a little bit of computer science.
I think you are on the right track but would add a few caveats
- distressed and sovs is not just legal arb but I would argue reward you for “value added research” to use a Griffin phrase plus think illiquidity protects a bit against automation (there are drawbacks too another discussion)
- think if you get your coding is up to snuff you’re in good shape for an analyst role in what I describe and sets you up better for sov credit than rx IB; would encourage you to go this all in sov credit route as long as you are interested bc you have the potential based on background
- rx ib is an expensive endeavor in terms of prep/lifestyle to be a “backup plan”
a few things;
- illiquidty sounds good to me. One of the appeals about the rx ib --> distressed HF is that many of the distressed mulistrats have begun deploying capital into illquid strats in fairly creative/broad mandates. Esoterics, opportunistic credit, etc sound interesting. I want to get very good at something very illiquid, and in some cases even non-auction. sort of like that archilochus quote "fox has many talents, hedgehog has one, solid trick." THe reasons for this involve personal philosophy + some non-professional details about how I want to plan my career. Would this make sov cdx a good play career wise?
- still unsure what these means. every history i've read on buyside em sov plays involves credit hfs which pull from rx (Aurelius, Elliott, DK, Apollo, Redwood, etc.) where do they draw from? also can't find anyone in my school + network who do this. Can't find anythign on handshake related as well. Unsure what analyst roles you speak of. As far as coding skills, would basic DS&A + pandas + very, very simple ML be fine? Ive been reaching a ceiling on my quant coursework (wish i could be smarter, thats not my edge unfortunately), sort of why I'm ruling out anything macro related because I don't think I could compete w/ the rates trading scene today.
- def see this, but fine to make the move only if the pivot is possible. If this makes sense, willing to pay w/ WLB for 2 yrs if it gives me a breath of optionality. Feel like rx might give the best background given the things I speak about above--but wiling to be convinced otherwise.
Also, feel free to PM and I can be more specific, would love to learn from people in the space (Assuming your at least in an adjacent space). I get it if not, w wanting to stay anon.
1.) sovereigns including cash and CDS would fulfill this definitely
2.) ok so a couple things- historically there were not many sovereign distressed opportunities so it wouldn’t make sense to have many stand alone vehicles- as noted above some had traditional distressed look at these and some had traditional sov analysts. More distressed opportunities today but I wouldn’t build a career as a distressed sovereign person bc there could be times the opportunity set is not huge. Instead you can be a distressed person that does corporates and sovereigns as you say. Or you can be a sovereign analyst that does performing, stressed and distressed sovereigns. For the latter I’d recommend analyst roles in any of the following over rx ib
- imf/ifi research
- min fin/central bank research
- s&t jr trader or desk analyst
- rating agency sov jr analyst
- buyside jr analyst for emerging market debt fund focused on sovereigns
- country risk group bank jr analyst
- econ consultancy jr analyst
and yes your skillset is good enough.
it comes down to do you want to optimize for a sovereign investing career (if so choose my option) or distressed (your option)- in the former you will definitely be able to do distressed at some point but no gaurentee you’ll do sovereign in the latter. Almost all HF strategies doing EM debt are doing distressed, stressed and performing whereas not all distressed HF are doing EM. Only you can make the choice.
understand rational for avoiding rates and think it makes sense
Is EM emerging markets?
Damn ton of good info on this thread I appreciate the inputs. If I can piggyback and ask a few questions:
- How come more traditional sell-side research wasn't amongst the roles you recommended?
- Do you see any of your recommendations as more desirable than others? I.e in the credit world, doesn't seem that someone at moody's and a credit research desk are seen as the same.
- U pointed its common for places to have the same person cover EM corps & sovs like they were the same and rightfully disagreed. Is this true for both sell-side/buy-side? I've seen banks have credit/EM research in different groups - what's the logic for this and where would EM credit people fall?
- What's a good resource on DSA or something that shows how the sausage is made. You mention it's greek to people with corp investing background, and makes sense, but haven't found many good sources. / What path would be closest to macro stuff that someone with a fundamental background could possibly pivot into?
where do macro credit guys develop / sit on the buyside?
Any thoughts on where Puerto Rico / distressed munis fit into this story of "sovereign tourists"? Wouldn't imagine there's as well developed distressed muni analyst universe.
I'm thinking of the ongoing PREPA clown show in particular.
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