Got an offer from a BB and I will have to choose my team soon. Their LevFin/FSG is the top one, however, would it be dumb to join one of these teams at the moment given the current economic/financial situation where a correction will most likely happen?
For those who worked in FSG/LevFin during/post the crisis how was the deal flow impacted? Same for people that worked in these teams during the Euro credit crisis in 2012?
This is for London/Europe.
LevFin is particularly pro-cyclical because it is capital markets driven so it exhibits more extreme boom-bust characteristics than traditional banking groups. The mistake that most people make when it comes to joining a cyclical group like LevFin is to extrapolate the past into perpetuity. In my experience, busts come a lot faster and more suddenly than booms. If that happens, investor demand will dry up, companies won't be able to tap the markets, and deal flow will come to a halt overnight. LevFin will have deeper and wider layoffs than most other groups, because of the massive hiring that happens during the boom. I knew a lot of laid off LevFin bankers from the last crisis. The right time to join LevFin is at the trough, when things are at its worst, and then you ride the cycle up -- not at the peak right before an impending crash. Best of luck with your decision.
One thing to keep in mind for this cycle is that debt markets have been white hot. Leverage loan issuance is at all-time highs, and the overall quality of the loans being originated have eroded for a couple of years. You probably have a number of banks that have continued to staff up to support issuance as we got deeper into the cycle. Many people don't expect the leveraged loan boom to end all that well, as the higher leverage points and weaker structures probably lead to weaker recoveries and a pretty punishing time for investors.
The GFC was focused on real estate / structured product markets, and while leveraged finance was certainly impacted, it wasn't the epicenter. There are a number of financial commentators that seem to think leveraged credit will be a major pain point for this cycle. Who knows if they are right or wrong? It is something to think about though, and definitely something to be prepared for if you are entering LevFin.
Finally, keep in mind that LevFin is primarily originating and dealing with performing credits that are pretty down the fairway for most institutional term loan / high yield buyers. The group is transaction and fee focused--much of the credit risk is being distributed to investors vs. held on balance sheet. There isn't necessarily a need for such a large LevFin workforce in a downturn, unlike credit underwriting / RX.
Being in a credit focused team during a credit-bust is a great opportunity to learn about distressed and stressed debt. I started in the levfin team of a ratings agency and it was a fantastic learning curve. Almost every LBO I looked at was busted with the company looking for covenant waivers, holding out for amends & extends, and engaging in restructurings/liquidations. I felt that myself and the other new analysts learned a lot more than the guys who joined in the bull market when every deal got financed and problems were few and far between.