Liquid Credit / Leveraged Loans / High Yield Groups
Figured I'd start a thread on this since there are only a few others on this topic and these types of groups don't seem to be too popular. But have done research into / networked with some of the notable liquid credit groups (think Ares, Blackstone, KKR, Bain Capital Credit, Carlyle, Apollo). Seems to be like this is this one of the best spots to be but it isn't as popular as private equity, hedge funds, private credit, or even investment banking. This is despite what seems to be similar comp (at least for summer analysts and analysts), significantly less hours (depends on group but seems like max at most for analysts is around 60 per week since its market based), and solid exit opps (distressed hf, credit hf, levfin sell side, l/s equities hf, or lower level / mid market PE). Unless you want to go Megafund PE (even though you're already there if you care about prestige), you have great work-life balance and even a moderate decrease in comp would be 100% worth it considering hours. Just wanted to see if what I'm saying is too good to be true or if anyone else agrees?
Bump, anyone know of any good internship programs in this space besides the firms listed in the post?
Exit opps are not as great as you think. I work a lot with credit investors across performing/liquid, stressed/distressed, opportunistic credit and they always look down on the performing/liquid credit folks as they are typically "spoon fed" information and given the ~$95-par trading levels focus, it's generally less intensive and more of a focus on risk management, diversification...when sh*it hits the fan, you can exit a position relatively easy vs private/illiquid credit. Most folks I spoke to at the "exit opps" you mentioned would prefer folks from IBD or Desk Analysts. In the junior level, the comp is relatively similar, but once you get more mid-level/senior, there will be a big delta in comp compared to PE/PC/Stressed/Distressed given the much higher IRRs generated there vs liquid credit.
Interesting to know. Don’t not believe you but recently spoke to an analyst at probably the top of the groups mentioned and they said they were getting headhunter emails for l/s and credit hedge funds all the time. Do you think the analyst’s experience (or yours) could be somewhat narrow?
I mean I get the emails all the time too :) But all joking aside, the mega fund name will get you a lot of looks from the buyside community (equity and credit), but it all depends. There are some specialist sectors within liquid credit that will always be in high demand for other credit strategies (including energy/retail/structured products). But the skillset is different between opportunistic credit and liquid credit (and would guess there isnt a lot of liquid credit hfs out there). For example, if its a distressed hf, besides having an understanding of the same dynamics as the liquid guys (credit analysis etc, rel-val, looking at credit agreement), you have to also deal with complex legal scenarios and if they are taking an active engaging role, there will be a lot of scenario analysis and downside protection/asset waterfall analysis done as well as creating value to ensure a favorable outcome for all parties. There's so many different credit HF strategies out there...I deal with some whose sole strategy is to flip primary issues (I wish someone gave me money to run that strategy) while others invest in stuff that are outside the normal path (e.g. investing in debt of public prisons etc). It truly depends.
Currently pondering this too. Whether it would be best to go into clo for lifestyle but long term dl provides more upside
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Generally speaking, all of the mega funds have CLOs that are managed by the performing credit/liquid credit group, along with SMA's, BDC's and other closed end funds etc). The performing/liquid/CLO folks are generally industry focused while the distressed/opportunistic credit folks are usually generalists so if there is a deep distressed situation, the distressed folks may cross the performing folks for industry expertise (so there is slight overlap), but the heavy lifting in those situations are done by the distressed team.
Within BX at least, I think the majority of liquid credit assets are CLOs
Correct, i still cant believe one of their CLO vehicles are called "Buttermilk"
Buttermilk is what comes out of Blackstone ;)
Could someone explain the difference between Opportunistic Credit and Direct Lending groups? If I wanted to join an MF or UMM with a credit arm that isn't purely senior secur / 1L / Unitranche, what funds should I be targeting?
Direct Lending is pretty much lending to the secured/1L part of the capital structure and unitranches (which is a stretch senior basically but levered through mid 5+ leverage) with a low LTV. Private credit is similar but they do play in 2L pieces too in traditional 1L/2L structures. Opportunistic credit is basically investing in everything that is credit related/off the run. They will invest in royalty financings, aircraft leases, structured real estate, pref equity, settlement litigation advances, Latam telecom, structured financings, and of course regular way loans too that direct lending/private credit guys look at that is hairy enough that it hits their yield bogey. Keep in mind that every opportunistic credit team is different with different mandates.
Opportunistic/special sit seems to be a catch all for me. There are some funds with flexible mandates that can even invest in equities and not just credit. Really depends on the job and they seem to be doing different things but tend to be creative with capital structure to box the risk and get the best risk adjusted return.
Could you explain the credit topic to me as if I were five years old? Like, for someone completely new to the credit market?
Following
def a post-MBA associate
Used to work in one of the groups mentioned. Every shop is structured a little differently, but generally it is a pretty good gig from WLB adjusted comp perspective. You can clear into the high 6 figures as you get senior, on par with direct lending. Very tight band in comp as performance is not a huge driver, but rather AUM. You invest in coupon clipping assets, you get coupon clipping comp. This is good from predictability perspective, not so much for meritocracy. This is actually very similar dynamic as direct lending btw, it’s a very similar asset class. At multi fund platforms like BX, KKR, Carlyle, etc, you work across direct lending and liquid very often. You can do strictly 8am-6pm with zero weekend work if you are efficient. Very little fire drills as new issue calendar (40% of work) and quarterly earnings (another 40%) schedule are on highly predictable timeline. This is a bit different from dedicated direct lending team culture in that deal timelines are more compressed and you effectively are client service to the PE sponsor, so creates more fire drills a la IB. Generally you get personalities that value the WLB a lot more and less hardo/hyper-ambitious in liquid credit/direct lending compared to PE/HF. Overall very similar to LO AM, except people tend to be less cerebral than strong equity teams in LO.
The issue is that if you start in these groups as a junior/mid level, your learning gets stunted pretty quickly and work just gets repetitive and boring. I’d say this is a better gig to settle into in your later career after going out and seeing more high intensity investing strategies like distressed or HF, and you decide that you’re OK not trying to be the next Dan Loeb or Paul Singer. Which is a perfectly fine conclusion to come to. Your life is very good getting out at 6pm every day and clearing 600-700k with minimal performance stress. The occasional right place, right time people will progress to PM or Director of Research type job that can clear low 7 figs (but job gets a bit more intense and there is moderately higher performance pressure)
Thanks for the info. As someone joining one of those groups out of undergrad soon, if I wanted to exit to one of the higher intensity jobs (distressed, special sits, HF, etc), how could I best position myself for the switch and how much difficulty would I face? And what are the more accessible exits?
It is very doable. I have since exited to a special situation and seen plenty others do it. I was even a bit older than you when exiting.
First priority is to master what you are working on - basic credit analysis, setting up credit and cap structure models, passable level of covenant knowledge, and generally who the players are. Ultimately good business analysis is the same regardless of specific strategy. Learn how to form an opinion on good biz vs. bad biz and how to model and value different sectors.
Your first 1-2 years should be spent just doing this. I wouldn’t worry too much about exiting just yet as you’ll have been learning the exact same basics no matter which strategy you’re in. Once you have a handle on this, start using your existing firm’s resources to follow what’s going on in the distressed/special sits markets. If there is a funky structure or corporate event, follow it closely and try to understand why those things are happening. As you gain more trust, you should be able to position yourself as someone who is aggressive and willing to take a look at hairy situations. Ask to get staffed on workouts and problem credits/sectors. Do your own work and pitch them to whoever will listen in your team. Start building a network with other investors involved in those situations. This is not easy but also doable as your internal competition at these firms generally don’t care to raise their own hands for this stuff, many of them will be happy to let you do the work.
Then within first 5 years, I would look to make a move. This is the sweet spot where you’re viewed as still moldable and hungry, but also have the basics covered. Go through case studies/pitches with weaker firms first so that you get some reps. You might inevitably embarrass yourself on the first one because you just don’t know what you don’t know. Ask for feedback and learn from each rep. Always have a long and a short pitch ready to go, which must be actionable today. Know the details of interesting credits you’ve worked on in current seat. Keep working until you find a great fund with strategy that aligns with your thinking and strong investment culture. Don’t worry about comp yet if this comes with a slight cut (possible if going to small, nimble HF vs. pretty good entry pay at Mega Fund Liquid Credit). But trust me you are expanding your career earnings potential when you do this, even if it feels like leaving a safe, big name behind. Do not fall into the trap of considering yourself a “KKR/BX guy” or something like that - too many people I’ve seen in these mediocre liquid credit seats don’t face reality by telling themselves this until too late, this is not good. But also be selective in where you go next and be patient if the opportunity doesn’t check 80% of boxes (ex comp). Ideally you want to focus on learning at the next seat for at least 3-5 years (or forever), not prepping for another exit
Can’t thank you enough for this, really appreciate it.
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