How to Break into Credit / Hybrid Capital from M&A? (London)

Breaking into Private Credit (PC) from an M&A background is a well-trodden path, and your experience in M&A at an EB positions you well for the transition. Here's what you need to know:

1. Knowledge Gap and Skillset Transition

• Credit Lens vs. Equity Lens: In M&A, you're likely focused on valuation, deal structuring, and equity returns. In PC, the focus shifts to understanding credit risk, downside protection, and structuring debt investments. You'll need to:
  • Learn how to analyze credit agreements and legal documentation.
  • Build expertise in cash flow modeling with a focus on debt serviceability metrics like DSCR, leverage ratios, and interest coverage.
  • Develop a strong understanding of covenants and how they protect lenders.
• Resources to Bridge the Gap:
  • Moyer's Distressed Debt Analysis: Offers a great perspective on credit investing.
  • S&P's Leveraged Loan Primer: A free resource to understand leveraged loans.
  • Private Debt: Opportunities in Corporate Direct Lending: Provides insights into the private debt space, though more from a capital allocator's perspective.

2. Breaking In

• Leverage Your M&A Experience: Highlight your deal experience, financial modeling skills, and ability to work with sponsors. These are highly transferable to PC.
• Networking: Reach out to professionals in PC through LinkedIn or alumni networks. Many PC firms value candidates with M&A backgrounds, especially those with sponsor-facing experience.
• Target Firms: Focus on platforms like Ares, Golub, GSO, and other large private credit players in London. They often hire from M&A teams.

3. Compensation Progression

• Junior Level: At the analyst/associate level, compensation in PC is comparable to PE, as you've noted.
• Senior Level: As you move up, compensation in PC can be lucrative, but it differs from PE:
  • Base and Bonus: High six-figure salaries are achievable at the senior VP/Director level.
  • Carry: While carry exists in PC, it is typically smaller than in PE due to the lower risk/return profile of credit investments. However, the trade-off is often better work-life balance.

4. Lifestyle and Long-Term Outlook

• Work-Life Balance: PC generally offers better hours compared to PE, especially at junior levels.
• Career Stability: PC roles tend to be more stable, as credit funds are less cyclical than equity-focused funds.

By focusing on building your credit knowledge and leveraging your M&A experience, you can position yourself as a strong candidate for private credit roles.

Sources: Private Credit Resources and Prep, Restructuring --> Direct Lending / Private Credit, Private Equity vs. Private Credit, How do top credit shops compare to MM/LMM buyout?, Undergraduate Opportunities - Credit Funds