Special Situations vs PE
Trying to decide between offers for special situations fund vs PE - has anyone been through similar and can help shed some advice on the key factors that pulled one direction over the other? Thanks
I recent switched from one to the other. What are your specific questions?
Following / would be good to hear why you moved, and what your experiences were in each role regardless of shop. What did you like about the different approaches to investing, what did you not like?
Have worked at a few shops within SS, of which one was inside the firm's PE group - can provide some colour if you specify your questions
Happy to help. Ignore title, at a MF in a SS seat (Sixth Street SC, Apollo HV, Ares ASOF)
Not OP but will be starting as an associate at one of the shops you listed in the summer. How can I best prepare myself for it?
Giving advice here that may be what you're hearing - or completely different so take at your own peril.
It's the soft skills that matter a lot (learning quick, picking things up) but ultimately I think in SS it's better to be well-versed in credit. So I'd pickup Moyer (even if it's more distressed leaning) and read A-Z about cap structures and intercreditor dynamics - debt covenants, subordination mechanics, secured/unsecured rankings. If you're really into it (and by no means need to) - study some landmark transactions e.g., J Crew (Laz) / Caesars and see how things played out. Get fluent in distressed bond/loan trading mechanics, learn basics of PC and how syndication works. Understand a little on bankruptcy law basics and some waterfall scenarios and recoveries. If you come from a sponsor-heavy team with good deal flow, explode the debt parts of the model and flex stuff like loan maturities, covenant tests, (this will teach you headroom analysis). WSO has a crap ton of resources, use them!
Lastly would recommend networking with people, insane how much you can learn from just speaking to people
hope this helps - and congrats man!
Special Sits is flexible capital but it is rooted in distressed credit. The returns are usually (but not always) predicated on massive IRR plays but not always very high MoICs - I think of it like distressed credit but on steroids, so maybe low 20s IRRs but only like 1.4-1.6x type MoICs.
Buyout has longer holds as the assets are typically more stable and the value creation plan is more linear.
I personally find special sits deals to be ones where private equity has passed on and where private credit finds it too esoteric or hairy.
Justin Trudeau turned Canada into a special situation
I'm just a drama teacher. Be kind.
Can you explain the high IRR / low MOIC point? Conceptually would think this is because cash flow is paying other instruments in the cap structure, so you are still receiving distributions in some sense despite equity not increasing as aggressively vs. PE (as debt/other instruments are not being paid down)
Short duration. There are some good intro to finance 101 videos on YouTube
Not OP, MF SS guy again. The high IRR / low MOIC dynamic in SS typically comes from the nature of SS investing - you often have multiple ways to realize returns through different instruments in the capital structure - can be pure MOIC (equity appreciation) which is flexed at a lot of shops (usually amounts to 1.4-1.6x as OP referred), but more common is CFs through debt paydowns, PIK toggle notes, or PE distributions along the way. Shorter CFs like that can make strong IRRs despite MOIC multiples. ofc not traditional buyouts where you're more into multiple expansion as your main focus is investing v extracting (in SS)
How hard is it to move back into PE if you want after working at a top SS group (e.g. Sixth Street Global Ops, BX Tac Ops, ASOF)? I’m sure that these groups have some very sharp people, so not too hard I imagine?
Correct
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