Q&A: VP MF Special sits
Have gotten a lot of good advice from this site over the years, thought I could give back while I have some free time.
My background:
Restructuring IB -> special sits/distressed hedge fund (2bn aum) -> special sits group at megafund (100bn+ aum)
My group today focuses mostly on structured minority equity, growth buyouts, opportunistic private and public credit. Not distressed loan to own, turnaround PE, though that may change.
edit: alright I’ve got to run so closing this Q&A for now, enjoyed answering your questions and hopefully this was helpful for you all. Cheers!
Thanks for doing this. A few questions from me, as someone in the same ecosystem:
1. Have you been seeing an outsized number of interesting opportunities over the past 6 months, given the lockup in the new issuance markets? How have you been prioritizing your time across opportunities / sectors in the current environment (only asking in general terms, obviously)?
2. How is the internal reputation of your special sits team versus the PE fund? Do you ever feel like the "little brother" group within your firm?
3. How often do you deal with mandate conflict across groups within your organization? Is it a problem or do you feel like swim lanes are pretty clearly defined?
Good questions:
1. Short answer is yes. Long answer is that a lot of the industries/businesses that weren't open to a "special sits" investor are now open to us (e.g., VC-funded tech, certain asset-heavy businesses that had access to cheap capital), so we are seeing a lot of opportunities, since the businesses that we would have seen in 2021 are still coming to us in 2022-23. It's been a bit of a learning experience, as developing a good understanding of a new industry is not easy and even harder to develop a discerning eye about which businesses in those industries are truly good ones vs bad ones. So we spent a lot more time/resources than we normally would have to develop the internal capabilities to understand these businesses (to a large degree by bringing in folks from different parts (PE/growth/credit) of our firm to act as thought partners) and are ready to capitalize on that investment in 2023. Obviously we continue to do the deal archetypes in industries that we know, as well, but are more selective about which processes we choose to participate in.
2. Depends on who you're talking to. Our firm started as a PE shop, so to them we may look like the "little brother" and I have certainly gotten that vibe from some folks. But we work together with our PE colleagues a lot (every single one of my deals had PE involvement), and those folks have treated us very much as equals. Some of our senior leadership came from the PE business, so they have the respect of their long-time colleagues as well.
3. Rarely an issue. We actual partner with the various funds across the firm quite frequently to pursue opportunities. We did have one time where we were looking at an industry that another fund was highly focused on, and we yielded to them. Reality is that our mandate is by far the most flexible and the universe of opportunities so broad so we'll be expected to yield if its head-to-head like that, but its more likely that we just partner together to chase it. I can't claim my experience is indicative of how it is at other firms though.
How do you price your capital in this environment? I.e. are you targetting greater returns for the risk (i.e. still doing Mezz but what was 12-13% risk should now be 17-18%), or aiming to achieve the same returns in safer deals (i.e. going 1L vs. 2L historically)? Are you increasing the targetted return of your fund or aiming to deliver the same performance?
Given our return hurdles/targets are not changed, we're doing both--if it's a holdco mezz loan, yea I'll ask for 5pts more than we did in 2021; if i can issue solid 1L paper at 15%, then yea we'd totally consider it. As an added bonus, that's allowing us to diversify our risk by adding in the safer bets like mispriced ABS while reaching for more binary/high-risk bets like cash-burning tech businesses.
Hate to be that guy, would love to hear what the comp progression was like from HF to SS.
HF associate ~$500K cash. MF SS lateral associate ~$350k cash. Make significantly more now as a VP, but large portion of it is expected carry.
I expect I would have made a bit more as a VP at the HF in a good year, but high variance.
What is new VP comp for you at MF?
Given OP is no longer responding, how did you guys read this for what VP cash comp may be at his shop. Any color from anyone on similar seats?
Appreciate you for doing this! I have a few questions:
1. How did you make your transition from HF to SS? Was it through a headhunter?
2. What's the B-school requirement at your current MF SS team? Did you get an MBA? Does the firm encourage/require you to get an MBA?
Thank you!
1. Yes, headhunter. My particular HF did both private/public debt and pref (think a mini version of Fortress), so it was a natural jump for me.
2. No b-school requirement. I do not have an MBA nor plan to get one. We do hire out of b-school, though.
Thank you for doing this.
1- How would you say the experiences at your past HF and your current PE fund differ (responsibilities, hours, type of deals, etc.)? Considering it seems they both were in the same space
2- For career progression and how interesting the work is do you think is better being at a PE fund or a HF? (both in the distressed space)
3- Any advice for someone deciding whether to go for PE or HF?
Thanks
1. There are several differences between my prior seat and my current seat that impact this answer, including fund size, strategy focus, sector focus, my title/rank within the group, etc. But in a nutshell, I would describe the HF as entrepreneurial, as I was part of an extremely lean team, actively involved in idea generation, small ICs where it was 2 partners calling the shots, and you live and die by the P&L. My current seat is more structured, we are involved in banker-led processes, our ICs are extremely thorough with 5+ members and 100+ page decks, and there is no mark to market. Hours are generally shit no matter where you go, but hey that's what you get paid the big bucks for.
2. Personally I love my current seat and can't think of anything more interesting. I like evaluating business fundamentals+strategy and taking a long term view, I like structured processes where I can get really in the weeds, and i like structuring deals so that we can optimize for what we want vs what the company wants. Like I mentioned in my OP, it's not a distressed shop, so we aren't doing loan-to-owns/forming groups to do lender-on-lender violence/doing quick pull to par trades, which are things you might find in some of your typical distressed credit HFs.
3. Depends on what you're looking for. You have my reasons for why I like my job, you should try to figure out what you like and find the job that finds your profile.
Thanks for doing this. I did a year in IB at a very small no name boutique shop before switching to a LMM/MM lender in T2 city where I am now doing non-sponsored and sponsored lending on storied/hairier credits (closed 2-3 deals so far). I have been in the lateral market for a year now gaining no traction at all from HH (due to lack of branding?) and interviews through personal networking not going anywhere. I want to stay in Private Credit but want to move up to a bigger platform with scale and more opportunity. A senior mentor at a top RX shop (HL/Evercore/Moelis) reached out to see if I would be interested in an RX Associate opportunity. Do you think jumping to RX at this shop for a year or so will help me transition back to lending at a larger shop? I am hesitant to jump to RX IB because I am unsure what is the success rate for IB Associates with pre IB buyside experience moving back to buyside?
just so I can provide the best advice that I can:
1. How many YoE do you have?
2. Would you be okay getting stuck in banking for an extended period of time?
3. When you say no traction, are you getting interviews then dinged, or just not getting interviews at all? Have you tried moving up more sequentially, i.e., to a MM/UMM firm like Medley, Kayne Anderson, some of the BDCs?
Thanks for responding on this. Appreciate it
1. Coming close to third year in a couple months.
2. Ok with the idea of spending 2-3 years in banking but not sure how buyside will perceive when I do try to lateral as Associate/VP role.. i.e. too senior for Associate (3 years lending/2 year RX IB) and not enough experience for VP/Principal role.
3. 4 interviews so far but dinged for various reason (hired local NY candidate, no relevant industry experience, decided to kill the role, dinged but received positive feedback). All 4 were after 2-3 calls and CIM + LBO case study. 2 thru HH and 2 via networking. Found that most HH firms wont reply to my intro/outreach email.
.
At your level, very common. Start hitting up headhunters. You're a bit late to the cycle for 2024 associates, but I'm sure plenty of off-cycle hires still being made.
Thank you for doing this. I really appreciate it.
1. Sounds like you're on the right track here. All 3 of those are great firms. If you move to RX banking, could be a bit easier, but you don't need banking nor an MBA.
2. RX IB analyst 80-100 hr weeks. HF associate 60-80 hr weeks. SS VP 50-60 hr weeks. Though I will say, I feel like I work less raw hours, but the time I actually spend on work has gone up. E.g., travel hours or just hours spent thinking about work
3. If the stars align, I'll make partner here. If not, I'll try to move to another fund that does the same thing. As i mentioned in a prior comment, i love my current seat, couldn't ask for a more intellectually stimulating job with a better group of folks.
Thanks for doing this.
A couple questions for you:
1) Thinking of longer term career choices, have you considered or is it possible to switch to the equity side like a traditional buyout fund? I am considering this path for career optionality, but wanted to get your view how you made the decision from HF to your current seat
2) Sounds like some of the mandates involve more equity investments. Can you speak to the difference in investing approach (i.e. thinking about downside vs. upside and different structuring)
3) What are some of the necessary skills an associate should focus on learning to do well and eventually get promoted?
Thanks!!
1. At the junior level, you could switch to pretty much anything. I have seen analysts/associates go on to do MF PE, L/S equity HF, distressed HF, you name it. At my level, I would probably have to take a step down market to do PE, as my background is more from the credit side. I think I could still easily move to other large cap distressed credit/special sits funds. As you get more senior, you obviously silo more, so it gets harder to move.
2. I think the main difference in underwriting is that for equity deals we need to gain higher conviction in the upside and we need to put a lot of thought into the value creation levers that need to be pulled to achieve that upside. What kind of operational improvements need to be made, do we know any execs that we can install into management, what kind of M&A can we do, etc. The fine tuning structuring comes generally after we've reached an idea of where we lean on the distribution of outcomes and we're trying to optimize for what we want vs what the company wants (for example, company wants to maintain a bigger share of the breakout upside, we want a bigger share of economics in base case outcomes, so we add warrants that down-ratchet as value goes down)
3. As a baseline, master the technicals. To get promoted, start doing what the VPs are responsible for; shell out IC decks, participate (pick your moments though) in internal meetings and management meetings, be proactive on workstreams. Start generating real insight--what I mean by this is, for example, if I ask you to run some cuts on a data cube, don't just send me an excel with tables and ask me to take a look. Run the cuts, think about what the outputs mean, synthesize the takeaways and how those takeaways impact the investment, and come up with ways to refine and improve the analysis. In short, add value beyond being an excel wiz.
Thank you! This is super helpful! Just two follow questions here...
1) Can you please talk a little about your prior role at the HF? For example: In terms of private/public debt, pref, are you talking about risky/opportunistic lending to non-sponsor companies where you put in a unitranche with warrant and high LTV non-convertible pref where you get mid-teens returns before all the rate hikes?
2) What are some of the shops out there that targets the types of investments you are looking at at your current MF?
Again, really appreciate your time!
Thanks for doing this.Super keen on SS as a career option. Do many firms hire analysts not through internship programs and what do you look for in juniors.
Here's my advice if special sits is your end all be all:
Crush it at the infra PE internship and get the FT offer. Recruit for either RX banking or buyside PE/credit (the higher on the risk curve the better) programs (or directly special sits analyst programs). Then when the associate cycle comes around, target special sits funds.
Thank you.
Can you please talk a bit about what drove the decision to move over from the HF to the PE shop? Longer hold?
How did the conversation around cash comp moving materially down day 1 go, generally a promise to be promoted on their side?
In a similar HF seat it sounds like at a slightly bigger fund and have considered the jump later down the line.
Sure. I'm generally more interested in investing in businesses than I am in securities, and I also enjoy being creative around capital structures and the deal-making involved. So, my current job gives me the best of both worlds. I wanted a role where I could get really deep in the weeds on diligence (with multiple rounds of data requests, hiring consultants, doing surveys, etc.), learn about the minute nuances of different businesses, and strike a deal with the company that would work for both sides, and you didn't really get that at my prior seat.
It sucked to take a pay cut, but I was at a point in my career where I needed to make VP at my next role or I should probably start thinking about alternatives, so that wasn't what was important to me. No promotion is ever a promise, but it was clear that I was up for promotion and had a window to prove myself.
My advice would be to think about what parts of your job that you like (is it the excitement of beating the market, is it deal-making, is it macro analysis, is it micro analysis, on and on) and talk to people to figure out what kind of role best fits your profile.
Thanks - much appreciated. How did you think about staying a year or two extra and trying to lateral as a VP vs. moving as an associate?
Feel like I have seen both moves so curious on how you thought about that calculus. I'm also in a seat that has a bunch of illiquids so get alot of both with structuring so feel like there is more of an ability to jump.
Hey, the thread has been awesome so far, thanks
I’m another junior RX consultant (A&M/Alix/FTI) 2YOE.
Do you have a view on joining a ~$500MM AUM distressed credit/special sits HF focused on middle market? They have a wide mandate from what I’ve been told.
I’m somewhat concerned about being at a smaller shop this early in my career could limit optionality but unsure if that’s valid or not.
It's generally harder to move upmarket than it is downmarket. So if you think you want to work for Elliott or BX in a few years, I would scope out what other options you could have.
Also at that size, it's very important who your PM is and what stage this fund is in. If this is a startup fund with a first time PM with great pedigree (e.g., Nut Tree in 2015), could be a very great launching point with tons of optionality (or a bust). If this is a fund that has been $500MM for a decade, then I'd look elsewhere.
Hey there - really appreciate you doing this! As someone who is interested in doing this at an MF, had a few questions:
1) What were the interviews like when you were first making the switch to special sits?
2) Are there any disadvantaged to moving to corporate special sits from a place that does hairy private credit focused on junior capital? Would one have to take a year back to make the switch at the ASO level?
3) How did you go about determining what fund was best for you?
4) As a bit of background, I switched to my current shop a year or so ago and am currently an ASO 2 interested in this space, with the reason to switch being fund-specific issues. Any recommendations as I go about my search? Particularly focusing in NYC area - any tips are welcome
1. "Walk me through XYZ deal on your resume", technicals, some behaviorals. Then case studies, which are by far the most important.
2. I don't think so. If you're an ASO2-3, I wouldn't expect to come in as a VP, you'll probably lateral as an associate then prove yourself to get the promote.
3. Factor #1 was strategy, factor #2 was platform brand/reputation, and factor #3 was the people/fit, in that order. Didn't really pay attention to comp, as I figured that would come over time, nor location, as I interviewed with firms all over the US.
4. I'd cast a wide net and take lots of interviews to get the practice. Do some practice case studies. Interviewing itself is a skill, so need to warm up that muscle
Will be joining a special sits group at a MF in a year and a half coming from RX IB. In your experience, what makes a good associate in SS and what do you look for in incoming associates (both technical and general market / investment acumen)? Anything to focus on during my time in RX that’ll help prep me for the SS role? And how is the culture in your group?
Would you mind if I PMd you
How do you compare risk-adjusted returns on various pieces of the debt cap stack? Lets say you have the option to invest in a stretch senior loan at S500 or second lien at S800, both trading at par. What metric do you look at?
I was wondering how you sell the fund to LPs. As you are investing across the cap structure it seems like the LPs are investing in a black box. How do they know what kind of exposure they are going to get?
How much authority do you have to actually negotiate the money terms, structure, and dollar check size as a VP? Or do you mostly present the facts and your view to the IC/Partners to determine what they want to do with that info?
How would a non tier 1 firm like Greenhill/Ducera/Jefferies place into MF special sits. There isn’t really much color on exit opps that aren’t from the top group like HL Rx/ PJT/ Moelis.
Additionally is there anything one could do at a firm like this to stand out.
I'm not OP, but do well on deals where you are working with juniors at buyside shops. Ducera and Greenhill place pretty well with what I've seen. Jefferies is a bit more questionable. MF Special Sits is probably the 4th most desired option out of the top RX groups (behind MF PE, Distressed / Event HF, L/S SM HF) so feels like alot of the top SS platforms end up recruiting from other RX groups anyways.
Would you mind explaining why MF SS is behind MF PE, Distressed/Event HF, and L/S SM HF? Why are these opportunities "superior" to MF SS? Thank you!
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