Special sits & distressed vs buyouts?
As an exit opp, post IB or just as a career path in general do people think special sits is more intellectually stimulating than buyouts or vice versa? Throwing out a few examples of special sits / distressed firms off the top of my head - Beach Point, Sound Point, Victory Park, Centerbridge, Atalaya, Tennenbaum (now Blackrock), etc.
Pros and cons of both investing styles, hours, comp trajectory, etc. insight would also be helpful
Buyouts = banking 2.0
Special sits / opportunistic / etc. = banking in 3D
I really like the comment above and tend to agree somewhat.
I worked in both mega-buyouts and in special situations focusing on private investments across the capital structure. I prefer the latter, with a caveat.
Pros of special situations: Incredibly intellectually stimulating, hugely educational across all aspects of deal execution and structuring, you can analyze any asset class after that experience and really understand what makes a good investment (and become a good sector-agnostic investor yourself!) Also, lots of freedom in deal origination, which I like. Sometimes higher comp (or at least higher numbers are more front-loaded due to more volume of deals / exits).
Cons of special situations: Unpredictability of hours (distressed often happens on a Fri night), more limited resources during the monitoring stage of your investments compared to buyouts, and tougher to explain your resume at exit to regular PE people. Also, I met lots of people with superhuman intelligence who are incredibly unpleasant or even toxic on a personal level and somehow are allowed to get away with that.
Pros of buyouts: More glamour (more formal dress code, better lunches, higher travel budget, better hotels, more team-building events), more resources during all stages of the investment cycle, generally intelligent and pleasant people (certainly more charismatic compared to the above), clear investment mandate that leads to a more structured career. Everyone understands your resume at exit.
Cons of buyouts: Most deals die. Most PE investors in large firms are sector specialists. No freedom of deal structures and less freedom in deal origination. Cyclicality: even if multiples are at all time high, you feel like you have to do deals (whereas my view is that you should focus 100% on selling your portfolio companies during such time). Constant stress about the investment period and "getting deals done", which may lead to executing some investments that are not the greatest. Risk of damaging people's lives due to putting excessive leverage on companies and contributing to financial distress: I would not have liked any involvement in Toys R Us and or similar deals.
If I had a choice again, I would go to either place and would base my decision entirely on how much I respect and like the people on the team. As, mandate aside, it is the people who will make your life either amazing or miserable.
Good luck!
I love your veiled attack. Love it!
Did I say universally? No, I did not say that.
If you think about it though, the buyouts guys face fierce competition from other LBO shops. Every deal is a crazy auction. They have to court management teams and vendors. Ultimately, they get paid for being good and effective salesmen of their capital. Good salesmen have to be charismatic, no?
Special situations guys, however, pride themselves on their intellectual honesty and ability to provide super smart solutions to challenging situations. They get paid for looking at truly hairy deals and restructurings. They don't need their charisma for that. Often, there is nobody else in line looking at the same transaction. Many people in special sits have a trading floor background, so they often grow up in a different culture. And I have come across a small proportion of people who can run a Black Scholes model in their head for some clever permutation of out-of-the-money warrants, but refuse being civil with others. And, while I appreciate their intelligence, I think their attitude sucks.
This is my personal opinion based on my personal experience. I am not getting into any more of this though.
OP, objectively healthy PE is better, easier, more exit ops, more glamorous, less risky and probably pays better. Everyone in the world will pick healthy buyouts except for two groups; (1) candidates who just aren't blue-chip enough to be recruited and (2) quirky weirdos who are somehow turned off by all of that and want a little more jungle warfare in their life.
Distressed is absolutely more intellectually stimulating. Speed helps make it more interesting/stimulating. Lack of a crowd and lack of a formal selling process make it so much more interesting. Straight up healthy PE reminds me of an art auction at Sotheby's; Let's all dress up real fancy, drive our Rolls to the auction, overpay for an asset within a highly choreographed sales process and then bake in the warm satisfaction of compliments from my peers for overpaying on such a choice asset.
I look at special sits (insolvent C&I businesses in my world) as trying to defuse a complicated bomb that everyone is running away from, under the pressure of both time and fear of competition. Any classically trained MBA in the world would look at these situations and rightfully proclaim that it's too far gone, hope is lost and they will fail to make payroll in 3 weeks. Every single fact supports that conclusion. Plus there is all sorts of liability, risk and (quite frankly) shit swirling around the deal. Any gentleman would quickly run away, shower off at the club and return to the auction house with his chums. But if you just sit there and stare at the flopping corpse in a shitstorm, and think deeply, solutions start coming to mind. And if you stare long enough, creatively enough and fast enough, you might see something that no one else has seen - a new method, structure, plan, partnership, angle of attack. And if you can develop a thesis fast enough you might outpace both the pending insolvency and your competition and walk away with an uncontested great deal. Well, at least an uncontested great thesis. 2/3 of the fun is turning that crazy thesis into a reality. And that is way grittier, exhausting and more intuitive that getting the deal in the first place. Compare that to the soulless thesis of; "We'll buy it at 6X, not fuck anything up and sell it for 9X".
I'd say personality fit is most important and being honest with yourself about where you'll be most at home.