Why private debt and not private equity?

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For what it’s worth I’m an undergrad and when I interviewed in PC I talked about my experience in a student investment fund and linked how my process focused on minimizing downside and how my personality is generally pretty risk averse. I got superdays at a couple places but ended up withdrawing.

I've done internships (treated like an Analyst due to super lean teams - literally me and a Director on a few deals) in debt and equity investments. All were sector focused shops (think real assets like RE, Infra, etc.). I personally like the equity side and ended up here, but here's some reasons on why I think debt is attractive from an investment and career perspective.

Investment: downside protection. If you finance a deal with a D/EV of 1, then your asset value has to decrease by 50% before your equity starts to get wiped.
- consistent cash flows. Credit is contract based. whether there's an agreement for monthly, semi-annual, or annual bonds (or even zero coupon), you will know when your cash flows are coming in.
- legal aspect. As someone who likes law but didn't want to do it as a career, I found it pretty interesting reading contact documents (although quite tedious at times). I have seen strategies that utilize this and the cap stack well. For ex. they've bought a piece of the mezz, negotiated with the senior debt holders, took control of the underperforming asset from the equity (wiped them out), and turned it around for a handsome profit. All of that involved contracts along with the valuation, business plan, etc.

Career: Deal variety. Might depend on sector and shop focus, but in a few months I was able to look soo many investments. On the equity side you are putting everything together, so it takes time for it all to come together.

Others can feel free to add on or correct me. Regarding interview answers, some of these will do you well, I used some points in the investment bullet points to get my internship. However, what I would say for interview answers is to truly think why you like something/ think it's cool, write it down, and practice. The passion shows more than a rehearsed answer in my experience, especially on the buyside. The more you practice your passionate answer, the easier it will be. Good luck.

At a junior level, I think the biggest advantages are deal volume and breadth of transactions. In PE, you can be working on a deal tirelessly for 6 months and then reach the final round of an auction and get outbid. You go incredibly deep on these businesses, but the number of transactions you see is far fewer. In private credit, you may only have 2-3 weeks from when you first receive a CIM to when you have to be through committee and signing commitments if the deal’s a real sprint. Obviously that means you’re not going to go quite as deep on the business, but if anything it forces you to focus on the most important aspects of the deal and filter out some of the BS. As a result, you’ll work on and close far more deals than you would in PE, which is an incredibly valuable learning opportunity early in your career. The second big point is being a generalist. Most large (and even small) PE shops are organized into industry teams, but even MF credit arms often remain generalist. That fact combined with the above point about volume means that you could be evaluating an insurance broker, a packaging company, an enterprise software business, a healthcare provider, a quick serve franchisee, a aerospace manufacturer, etc, all in a span of a couple weeks. I don’t think you could ask for a better crash course in private-side investing than that, which is why I think private credit is an awesome place to start your career regardless of whether you want to do credit or PE long term

Spent c.1 year in private credit and worked across CLO, DL and junior capital (not opportunistic) with most of the time spent on DL.

PC sits between public markets and private markets, as it benefits from the high turnover of sector-agnostic opportunities (vs specific focus and lengthy process for PE) and access to confidential information which allows you to better understand a business. In my view this is a pro as a junior, as you get a very generalist experience but at the same time 5 years down the line you will not be specialized vs industry team at PE.

Additionally, credit it's more qualitative vs quantitative and you are focused on downside protection vs upside for PE, and it's quite easy to spot risks and understand if you can get comfortable or not.

Last but not least, WLB - hours are better, and overall it's more efficient in my opinion. Why? Most of the time you go through sell-side material and buy-side DD, nicely packaged. Additional DD performed is limited and focused on specific topics.