How much of a difference is there in Special Sits/Distressed between PE vs HF
As a UG trying to figure out exactly what style of investing I want to pursue, I've been struggling to fully get my mind around what separates Special Sits PE from SS HFs other than just focusing on private vs public companies (though even this line seems blurred) and deal size. From what I've seen both typically look at just about anything, all over the capital structure. I've seen SS PE compared to HF-like mindset, and it seems like by nature SS HF can end up far more hands-on than a typical l/s HF.
As a result, SS HF and PE positions seem quite similar. Does this mean there's also career mobility between the two? Or am I fundamentally missing something about these sectors?
Some of the differences may be due to fund structure / financing / compensation of the actual money being invested. PE funds are generally draw down with like a 10 year term. Money is locked up. So can invest in longer duration stuff and the manager doesn’t really take a mark or get paid until exit and capital return. Cash on cash is a good focus here.
HF are generally relatively more liquid vehicles for the investors with ability to take out some money like quarterly or annually or every couple years maybe. They also get marked each year and performance fees can get booked and paid each year. So it might be a better home for shorter term quicker trades or trades/investments that might not need 5+ years to play out.
Like buying some bonds in a restructuring process that will take a year or two until you can get paper that traded at par is good for a HF. If the investment will need a full loan to own and take 5 years to clean up the company and get full value, a PE fund with a 5 year+ lockup on the capital may be a better home for that investment.
just my initial thoughts here. I hope that helps even just a bit hopefully. Good luck and best wishes
Do you have any thoughts/perspective on moving between the two career-wise? Sounds like the mindset and skills are very similar, you’re just pulling the trigger on different investment profiles.
The time scale of ss pe seems appealing, but ss hf out of ug is looking viable. Don’t want to pigeon hole myself too hard, but also wouldn’t want to pass up something that’s close enough to my goal.
I am not so sure but sounds like a move from ss hf to ss PE may be possible, but I am not sure if I have seen that too much in my little experience. Generally the way I have seen people get into PE is through banking but that just may be me and/or the little I have seen. Good luck either way
Don't have knowledge of your background, but describing SS HF out of UG as "viable" is a stretch for pretty much everyone. To my knowledge, there's only Atalaya, Silver Point, and perhaps some smaller funds who hire analysts out of UG. You're talking about a maximum of a half a dozen seats in the US probably. If you add in Bain Cap Credit and Blackstone Credit, that's another dozenish.
Most SS/distressed hedge funds will recruit from Rx/Lev Fin banking and sell-side distressed trading desks/research, with the later category being less common after the GFC. If you have an interest in special sits, that's my recommendation.
The distinction between PE and HF vehicles shouldn't be in your mind when you think about of recruiting out of undergrad.
I have a seat at a smaller fund but debating vs just going rx. I like the place but don’t want to close any doors (ie route to ss pe) without fully learning about them
I see. I have my own bias and level of risk aversion here to be sure, but going in to a HF straight out is probably not the best risk adjusted option. For L/S going straight in might make sense since banking + PE are quite different (i.e. process driven as opposed to idea generation driven).
In a good Rx banking analyst program, you will get to see more types of situations (including debtor side advisory, which can be helpful as an investor), develop strong technical skills, and get the benefit of the branding that you won't at a small HF. The opportunity cost of doing this is two-years at the HF and I would argue that's not material in terms of long-term development.
If you have the option, I would at least advise you to recruit for RX SA programs (which you should pass resume/networking filters presumably given your HF experience) and decide from there.
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