Private Credit -> Private Equity
Hey people,
How common is the move from Private Credit to Private Equity? Does anyone know if it is a fairly common move? Wanted to get a sense of how easy it is shift, particularly at the Associate level.
Thanks!
Will depend on (i) background prior to private credit (IBD M&A / RX is preferred over starting in private credit / commercial banking out of school), (ii) type of private credit shop you are at (opportunistic / non-sponsored / special situations oriented preferred vs. more flow down-the-fairway), (iii) whether shop you are at is friendly to intra-team transfers (certain companies will move people), and (iv) any industry / role specialization (hyper specialized industries / workout teams with significant control equity positions).
Biggest questions PE funds will have -> are you technical enough, do you have the horsepower to do the job. They have their pick of the litter of banking candidates so you likely have to bring either the same background prior to PC or a really compelling reason on experience. Firms don't typically tend to view private credit as the most technical, especially at some of the more sponsor friendly shops (ie; Antares, Golub, etc.) and its even worse if you are at a flow shop that they don't recognize.
For the move not particularly common and much more common the other way around. If you just want to move into a private equity firm, capital markets seats are natural landing spots for private credit and often times can be extremely lucrative risk-adjusted seats (I have seen a few carry tables for MM / UMM funds and the head of capital markets / senior cap markets folks top out at mid-level PE partner carry allocation).
I made the move from private credit over to private equity. It was tough -- but I did have a very difficult background to work with. I came from a non-target undergrad, small bank and was at a BDC that was not affiliated with any brand name firm. Ultimately I did 5 years in private credit and then an MBA to get into a PE fund (Sr. Associate title investing out of a ~$1B fund).
I agree with the above poster on the challenge being "are you technical enough?". For context, PE funds spoon feed diligence to lenders. I often got the impression that those in PE believed people on the credit side were simply re-packaging diligence into a memo for the credit committee to rubber stamp. As such, there were questions about whether I could run a financial model or think critically on a deal.
I did have a leg up on credit documentation, which is a hard / technical skill. However, many PE funds did not value it -- viewing that as something they can work with legal counsel on / not critical for an associate to know.
With a little more perspective now, I think what it boils down to is this: someone coming from private credit will be judged as an experienced investment professional and therefore the bar is "is your investment experience comparable to PE?" Even though it may be the same entry-level associate position, the bar for someone coming from a private credit background is set higher than someone coming out of a banking analyst program. It takes creativity and grit to overcome that.
It becomes extremely difficult to lateral from PC to PE as you get more senior.
It’s more doable at the associate level, but still quite difficult.
The transferability of skills vary depending on what type of shot you’re at.
For example, if you’re at a direct lending shop that does primarily sponsor finance transactions, I think the skillset gap widens. Whereas a distressed lending shop or one that is more non-sponsor focused, the skillset gap between PE and PC is more narrow.
80-90% of the technical skills carry over but the real delta is other deal management aspects that a traditional private lender never needs to even think about.
In private equity, you “develop” and “create” the deal by sourcing from hundreds of deal opportunities that are being marketed, notwithstanding proprietary sourcing.
In traditional sponsor direct lending, the deal is already packaged as well as the capital structure already sketched out. That’s because the PE firm has already done that work for you. The lender still conducts their own diligence, but a lot of the lender work is “secondary” diligence work not “primary” diligence work that the PE often develops before a lender process is even invoked.
I wrote this out quickly, but hope that makes sense. I would love to hear about someone who has transferred from sponsor finance to a reputable PE shop. It definitely happens, though.
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