AMA: Credit Analyst at +$5B Distressed Shop

Have lurked on WSO on-and-off since pre-crisis days. Reading the material on here helped me get my first internship - time to give back. Happy to answer anything and everything. Quick background below.

- Beginning third year as investment analyst at a $5B event-driven / distressed debt fund
- Invest in global credit situations throughout the cycle (performing, defaulted, liq claims) across the cap structure (bank debt, HY bonds, busted converts, credit-themed equities) in all geographies (US, Europe, Asia, LatAm, etc)
- Spent one year at elite boutique covering an industry
- Ivy League undergrad with Econ degree

Fire away.

Region: 
Mexico + Central America
All Europe
All Asia Pacific

Comments (100)

Apr 17, 2014

1. How'd you get your current gig? Headhunter or personally reaching out?
2. Did you make a pitch for your interviews and/or were you given a case study? If a case study, what did it entail?
3. Were you aiming for a distressed shop or just any strategy in general?
4. Anything you wish you would've studied up on/practiced/read before you got into your current role?

Thanks!

Best Response
Apr 18, 2014
HFer_wannabe:

1. How'd you get your current gig? Headhunter or personally reaching out?

2. Did you make a pitch for your interviews and/or were you given a case study? If a case study, what did it entail?

3. Were you aiming for a distressed shop or just any strategy in general?

4. Anything you wish you would've studied up on/practiced/read before you got into your current role?

Thanks!

1. Neither. I was considering an offer from another fund when I was opportunistically referred by a friend to my current fund. Went through a very expedited interview process (less than 2 weeks from 1st round to offer).
2. Case study. Entailed 3 page memo with model output and other key items of the thesis.
3. Only aiming for distressed / special situation type shops. All due respect, the last thing I wanted was to find a gig where I covered one or two industries and made investment decisions every quarter based on how EPS compared to quarterly estimates. I have close friends who work at L/S equity shops and their work just doesn't appeal to me. I also didn't want to be the millionth guy covering HLF. Event-driven / special situations was much more my flavor (distressed being a sub-category of those two strategies). I scour the world for "value with a catalyst" type of situations, get smart on the space and the value trigger, and deploy capital opportunistically.
4. Everyone on WSO touts the importance of fundamentals. While fundamentals are definitely type of mind for us in distressed, we also have to think about market technicals, politics, legal issues, and other issues you can't model.

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Apr 19, 2014

Love the answer to 3.

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May 31, 2015

To answer no 3: Why didn't you consider fixed income buyside in a Asset Management or long/short credit fund?

Apr 17, 2014

1. Does your fund do CLO's and if so, how is the work split between looking at performing credits (for CLOs) and non-performing credits (stressed/distressed opportunities)?
2. Hardest part of the job?
3. What made you decide debt, not equity, investing was the route you wanted to take?
4. Thoughts on when the market is going to finally tip over - deal have had very aggressive leverage and pricing terms with very loose docs as well
5. Split of holdings (maybe this is confidential) between performing (par) and defaulted (distressed) credits at the moment

Thanks!

Apr 19, 2014
fearandloathinginca:

1. Does your fund do CLO's and if so, how is the work split between looking at performing credits (for CLOs) and non-performing credits (stressed/distressed opportunities)?

2. Hardest part of the job?

3. What made you decide debt, not equity, investing was the route you wanted to take?

4. Thoughts on when the market is going to finally tip over - deal have had very aggressive leverage and pricing terms with very loose docs as well

5. Split of holdings (maybe this is confidential) between performing (par) and defaulted (distressed) credits at the moment

Thanks!

1. No CLOs. We try not to get involved in "carry trades" as that can really hurt you in tail-risk environments. Current income is important but we much rather look for situations where we can buy bonds at deeply discounted levels and exit at par plus (or significantly higher than that) through an organized restructuring or some other catalytic event.
2. Hardest part of the job is understanding that generating high compounded returns requires not just an "investor" mentality but also a "trading" skillset. While we are a fundamental value driven shop, understanding trading dynamics is critical to success - and also one of the most difficult parts of the job given my banking background.
3. Comes down to my personality and how I see value. As I've mentioned, I didn't want to be just another analyst covering some blue chip stock that all the Tigers owned. My view is that generating sustained alpha requires investing in complex, off-the-run situations that are difficult to source and analyze. Much of what I look at is in international markets nowadays since US credit and equities are expensive.
4. See comment above. I think US HY and equities are on the verge of being in a bubble - March was a necessary correction. To make money in this market, I think you're supposed to get out of carry trades, position your book defensively by being long cash, and stick to high conviction securities where the thesis holds even if you see mark-to-mkt losses in the short-term.
5. Defaulted securities make up less than a quarter of the book given where we are in the cycle.

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Apr 19, 2014
valueisoverrated:

2. Hardest part of the job is understanding that generating high compounded returns requires not just an "investor" mentality but also a "trading" skillset. While we are a fundamental value driven shop, understanding trading dynamics is critical to success - and also one of the most difficult parts of the job given my banking background.

Can you elaborate on this? Klarman and Marks both seem to pooh-pooh the idea of the short-term, speculative, trading dynamics, arguing that it's impossible to reliably predict and monetize. Obviously I understand the trading dynamics have an impact on your returns (i.e. you might make money from taking a position in an undervalued stock, but you'll make even more if you enter the position after a broad market sell-off since the stock becomes even more undervalued). But how do you optimize for stuff like that (if it's even possible)?

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Apr 17, 2014

Advice on dipsetting from banking as early as possible (starting at an EB)? to a hedge fund.

Apr 19, 2014
kidflash:

Advice on dipsetting from banking as early as possible (starting at an EB)? to a hedge fund.

1. Understand how companies generate cash.
2. Know how to model.
3. Using above, practice coming up with investment theses ("these bonds trade at 80c and will go to par in three months for the following reasons")
4. Get in front of funds (either through networking or through HHs) and pitch your ideas.

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Apr 19, 2014

Thank you!

Apr 17, 2014

What industry did you cover at your EB? Do you think that coming from one industry group vs. another (generally speaking not bank specific) provides any advantage/disadvantage for those wanting to break in to a fund such as yours? Thank you very much for doing this.

Apr 19, 2014
Chicken Parm:

What industry did you cover at your EB? Do you think that coming from one industry group vs. another (generally speaking not bank specific) provides any advantage/disadvantage for those wanting to break in to a fund such as yours? Thank you very much for doing this.

I covered media, an industry that has seen a lot of transformation in the past decade which has brought a lot of winners and losers. While everyone likes to invest in winners, we look for value in the losers as well - something L/S equity guys largely can't do. No advantage or disadvantage in terms of industry versus product. As mentioned above, understanding how companies generate cash is most important. We look for "athletes" not finished products when we hire junior members.

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Apr 17, 2014

How much of your work is from your own ideas vs. what your PM tells you to look at?
How do you go about identifying new investment opportunities?
Did you feel you knew enough about distressed debt after a year in industry coverage or did it feel like you were in over your head at first?

Apr 19, 2014
goblan:

How much of your work is from your own ideas vs. what your PM tells you to look at?

How do you go about identifying new investment opportunities?

Did you feel you knew enough about distressed debt after a year in industry coverage or did it feel like you were in over your head at first?

I generate all my own ideas at this stage. Idea generation comes from your typical sources: going through BK filings, sell-side analysts, other buy side analysts, setting up alerts on Bloomberg, talking to companies, etc. a lot of this has been covered by BlackHat in his thread. Some of my best trades have come as a result of a Bloomberg screen that tells me a bond has dropped 30 points in two trading sessions. Others have come from going through filings.

Definitely in over my head at first, but there was an infrastructure in place so I could always pick the brain of my PMs or more senior analysts.

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Apr 17, 2014

Thanks for doing this!

1. Did you feel that once you got into the debt space that you might be pigeon-holed into credit funds only?
2. Where do you guys source these deals from? Do you have a say in pitching public debt securities or do you guys deal mostly with private debt?
3. Who are the big players in the distressed space?
4. How do bonuses in credit funds change as you progress through from 1st to 3rd year analyst? How does it compare relative to other credit shops?

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Apr 19, 2014
adoptedcheesenip21:

Thanks for doing this!

1. Did you feel that once you got into the debt space that you might be pigeon-holed into credit funds only?

2. Where do you guys source these deals from? Do you have a say in pitching public debt securities or do you guys deal mostly with private debt?

3. Who are the big players in the distressed space?

4. How do bonuses in credit funds change as you progress through from 1st to 3rd year analyst? How does it compare relative to other credit shops?

1. I wouldn't say I'm pigeon-holed into distressed credit, since I think my skill set translates well to any event-driven or special situations fund.
2. See earlier comments on idea generation. We do mostly liquid and tradeable debt, but obviously can go into more illiquid/private credit as well. Very rarely do full bilats though.
3. Usual suspects are Oaktree, GSO, Canyon, Centerbridge etc. But there are smaller managers that are very good in this space.
4. Not sure how my bonus compares to other funds, so won't comment there. What I'd say is that my bonus initially was solely determined by performance of the fund, but now it also takes into account the success of my investment ideas, which means there's an element of meritocracy (if I have a lousy year compared to other analysts, my pay is lower than theirs, and vice versa).

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Apr 17, 2014

Any opportunities for BB credit analysts at a shop such as yours? Or are the analysts mostly former IBD analysts?

Apr 19, 2014
fixedfaileddelivered:

Any opportunities for BB credit analysts at a shop such as yours? Or are the analysts mostly former IBD analysts?

Definitely! We have no bias between credit research and IB. As mentioned, we hire "athletes" at the junior levels.

Apr 19, 2014

Do you see alot of former LevFin analysts at your

Apr 17, 2014

What kind of modelling works do you do at your fund? What do you think are the most valuable skill sets you have developed at your current position? How do you think these skill sets will help you in your future endeaver? What's your future plan, both long term and short term?

Apr 19, 2014
HedgeKing:

What kind of modelling works do you do at your fund? What do you think are the most valuable skill sets you have developed at your current position? How do you think these skill sets will help you in your future endeaver? What's your future plan, both long term and short term?

1. Typical fully integrated three statement modeling, though we are obviously more interested in cash flow. Also like to model on a unit economics basis (i.e. for shipping cos, what is the progression of charter rates and how do I see the various components of my vessel opex change over time? is the vessel owner better off managing in-house or hiring a third-party manager. If so what's the impact on my cash margin?). Unit economics are crucial.
In distressed, we also have to model the BK waterfall to get to recoveries from various return streams (i.e. cash, new debt, post-reorg equity, warrants). How does providing a backstop facility impact our returns? What if the company is liquidated versus reorganized? We model like equity guys with one additional layer of complexity.
2. Most valuable skillset is my overall ability to analyze situations through my understanding of the company's financials, industry, legal issues, etc. My boss once told me that we're supposed to become Navy Seals - we do all the required training and have all the required skills, and if you put us into any situation in any corner of the world, we'll understand it better than anyone else and probability of success is high.
3. I think these skillsets are critical to becoming a PM, which is my goal in the medium-term.

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Apr 21, 2014
valueisoverrated:
HedgeKing:

What kind of modelling works do you do at your fund? What do you think are the most valuable skill sets you have developed at your current position? How do you think these skill sets will help you in your future endeaver? What's your future plan, both long term and short term?

1. Typical fully integrated three statement modeling, though we are obviously more interested in cash flow. Also like to model on a unit economics basis (i.e. for shipping cos, what is the progression of charter rates and how do I see the various components of my vessel opex change over time? is the vessel owner better off managing in-house or hiring a third-party manager. If so what's the impact on my cash margin?). Unit economics are crucial.

In distressed, we also have to model the BK waterfall to get to recoveries from various return streams (i.e. cash, new debt, post-reorg equity, warrants). How does providing a backstop facility impact our returns? What if the company is liquidated versus reorganized? We model like equity guys with one additional layer of complexity.

2. Most valuable skillset is my overall ability to analyze situations through my understanding of the company's financials, industry, legal issues, etc. My boss once told me that we're supposed to become Navy Seals - we do all the required training and have all the required skills, and if you put us into any situation in any corner of the world, we'll understand it better than anyone else and probability of success is high.

3. I think these skillsets are critical to becoming a PM, which is my goal in the medium-term.

Thank you for the reply. I have got two more questions.

First, do you hedge the currency risk?
Second, are you happy with the accounting transparancy of those foreign companies?

Apr 18, 2014

Why is value overrated?

OK now for my serious questions. At this point in the credit cycle do you think there are still good NPL opportunities left in the U.S or have you shifted to mostly performing stuffs like many others have? What do you think are the best places to look for yield in the U.S credit space? Which countries and asset classes do you think offer the best yields right now?

Many Thanks for doing this BTW.

Apr 19, 2014
brandon st randy:

Why is value overrated?

OK now for my serious questions. At this point in the credit cycle do you think there are still good NPL opportunities left in the U.S or have you shifted to mostly performing stuffs like many others have? What do you think are the best places to look for yield in the U.S credit space? Which countries and asset classes do you think offer the best yields right now?

Many Thanks for doing this BTW.

Hate making sweeping generalizations but I see no value in the US credit markets right now. I'm spending most of my time in international situations. My favorite trades right now are 1) long bank debt of a global shipping company, 2) short HY bonds in some sectors in LatAm and 3) long busted converts in a quasi-merger arb situation in the UK. I think there is attractive value in shipping, given you can buy assets at historically low valuations at the bottom of a cyclical industry. I'd caveat that by saying you have to know where to look - if you're piggybacking off the Oaktrees and Davidson Kempners of the world and participating in HSH or Danskebank auctions for NPL portfolios you're looking at very low IRRs. However, if you're looking at more off-the-run situations with smaller cap structures, you can find some attractive opportunities in shipping.

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Apr 19, 2014
valueisoverrated:

Hate making sweeping generalizations but I see no value in the US credit markets right now. I'm spending most of my time in international situations. My favorite trades right now are 1) long bank debt of a global shipping company, 2) short HY bonds in some sectors in LatAm and 3) long busted converts in a quasi-merger arb situation in the UK. I think there is attractive value in shipping, given you can buy assets at historically low valuations at the bottom of a cyclical industry. I'd caveat that by saying you have to know where to look - if you're piggybacking off the Oaktrees and Davidson Kempners of the world and participating in HSH or Danskebank auctions for NPL portfolios you're looking at very low IRRs. However, if you're looking at more off-the-run situations with smaller cap structures, you can find some attractive opportunities in shipping.

Thanks for your explanations. These largely concur with my own observations as well. It is inane to get into bidding wars with the Oaktrees of the world over NPLs or junk bonds like many are doing. In fact Oaktree and the likes are none too happy with the returns they'd expect from some of those auctions, compared to the returns they were used to be getting. Unfortunately for them, their AUMs have gotten so large that it is difficult to get into smaller cap structures and other situations that require much smaller ticket sizes, unless they team up with smaller local players and co-invest into their positions on a bulk/portfolio basis.

Seeing that you are covering deals from several continents, do you feel the need to travel or is it generally sufficient to follow the markets from your office in NYC?

Apr 18, 2014

What's your investment process? Like, how much work do you do before you put ~20mn in a position. And how much do you utilise consultants? Your investment memos, 10 pages, 50 pages?

Along with above, where are you seeing value these days? A lot of the guys we speak to are doing 15+% IRR direct lending in shirty countries, but with okay rule of law.

I'm a distressed desk analyst, and you have my dream job, so cheers for piping up.

Apr 18, 2014
Oreos:

A lot of the guys we speak to are doing 15+% IRR direct lending in shirty countries, but with okay rule of law.

Ha you may as well be talking about my firm. Shirty countries/okay rule of law or otherwise, what matters most to people like us is come up with the right deal structures to shield our interests and have real meaningful controls over the collateral. Plus 15%+ returns are hard to resist in this yield environment, and when levered/securitized/syndicated out, you can easily make well north of 20%.

Apr 20, 2014
Oreos:

What's your investment process? Like, how much work do you do before you put ~20mn in a position. And how much do you utilise consultants? Your investment memos, 10 pages, 50 pages?

Along with above, where are you seeing value these days? A lot of the guys we speak to are doing 15+% IRR direct lending in shirty countries, but with okay rule of law.

I'm a distressed desk analyst, and you have my dream job, so cheers for piping up.

Investment process is fairly standard. Once I've identified an interesting situation, I try to understand how the company generates cash flow, which will involve going through financials, MD&A, the entire BK docket if it's a chapter 11, and modeling out the business. In the meantime, I'll put together a memo which can range from one page to twenty depending on the complexity of the situation. We do not use consultants - our analysts are taught to be resourceful. For example, if we are trying to get up to speed on the geology behind an oil field in Canada, we'll call up the local department of geological services which has a massive amount of data. We spend a lot of our days figuring out how businesses work.

We do less of the full bilat stuff, but will invest in emerging markets under the right circumstances. We'll generally by USD or EUR denom debt with external law, and we'll tend to only buy liquid cash bonds where we can get in and out of positions quickly. I've discussed the value bit in a prior post with specific examples. True idea generation and value sourcing is immensely difficult, but the key driver of alpha. For example, a lot of funds have identified Europe as a fertile ground for new opportunities in distressed but believe me when I say that there is a TON of capital chasing limited opportunities. This means auctions are crowded or asset prices are ahead of fundamentals. At that point, you are buying assets at 90c and asymmetry is largely gone.

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Apr 22, 2014
valueisoverrated:
Oreos:

What's your investment process? Like, how much work do you do before you put ~20mn in a position. And how much do you utilise consultants? Your investment memos, 10 pages, 50 pages?

Along with above, where are you seeing value these days? A lot of the guys we speak to are doing 15+% IRR direct lending in shirty countries, but with okay rule of law.

I'm a distressed desk analyst, and you have my dream job, so cheers for piping up.

Investment process is fairly standard. Once I've identified an interesting situation, I try to understand how the company generates cash flow, which will involve going through financials, MD&A, the entire BK docket if it's a chapter 11, and modeling out the business. In the meantime, I'll put together a memo which can range from one page to twenty depending on the complexity of the situation. We do not use consultants - our analysts are taught to be resourceful. For example, if we are trying to get up to speed on the geology behind an oil field in Canada, we'll call up the local department of geological services which has a massive amount of data. We spend a lot of our days figuring out how businesses work.

We do less of the full bilat stuff, but will invest in emerging markets under the right circumstances. We'll generally by USD or EUR denom debt with external law, and we'll tend to only buy liquid cash bonds where we can get in and out of positions quickly. I've discussed the value bit in a prior post with specific examples. True idea generation and value sourcing is immensely difficult, but the key driver of alpha. For example, a lot of funds have identified Europe as a fertile ground for new opportunities in distressed but believe me when I say that there is a TON of capital chasing limited opportunities. This means auctions are crowded or asset prices are ahead of fundamentals. At that point, you are buying assets at 90c and asymmetry is largely gone.

Haha, okay, so your fund doesn't like paying for consultants. But don't say that other's aren't resourceful just because they have that luxury.

You mention you like liquidity, but also like to find under the radar situations, there aren't a huge amount of those (by very definition), would you prefer to give up liquidity or returns? And how risky is too risky for you? Pescanova? Icelandics?

I'm in London, I know how ridiculous it is, particularly when you have the likes of Oaktree coming to us asking for ideas which yield 8%+ as part of a "new" fund, or KKR buying whole Italian bad banks.

Apr 18, 2014

did IBD set you up better for this then some type or credit trading / credit research / credit desk analyst role? Can you just talk about the pros and cons of ibd over the latter roles in terms of working at a credit fund?

Apr 20, 2014
Prangs:

did IBD set you up better for this then some type or credit trading / credit research / credit desk analyst role? Can you just talk about the pros and cons of ibd over the latter roles in terms of working at a credit fund?

While we don't formally differentiate between these types of analysts, I have a bias for IBD analysts simply BC I came from an IBD program and I know the type of work product these analysts produce. If I hire the IBD analyst from GS or Evercore, I know that he knows how to model and I know he has experience thinking about businesses. If I hire a credit desk analyst from Barclays, yes they may know more about the markets, but I have no idea if they can model complex situations. Getting up to speed on market technicals and lingo is much easier than teaching someone how to appropriately use INDEX/MATCH and modeling out the three statements.

Apr 18, 2014

How much value add, or is there any value add, over private equity debt funds versus a high-yield bond mutual fund, over a 10 year time horizon? I've seen value add in buyout over public markets, and I've seen it in top-decile venture, but I don't often run across too many debt funds that really are compelling.

Yes I get that it can be "non-correlated", but over a 10-year LP agreement, does that really matter? Serious question--I'm not trying to be argumentative.

Apr 20, 2014
JulianRobertson:

How much value add, or is there any value add, over private equity debt funds versus a high-yield bond mutual fund, over a 10 year time horizon? I've seen value add in buyout over public markets, and I've seen it in top-decile venture, but I don't often run across too many debt funds that really are compelling.

Yes I get that it can be "non-correlated", but over a 10-year LP agreement, does that really matter? Serious question--I'm not trying to be argumentative.

Not sure I'm understanding your question, but it's pretty clear that returns from alpha-oriented multi-strat but credit-oriented managers tend to outperform whatever PIMCO product you own in your Roth IRA.

Apr 18, 2014

Great questions guys. Will respond over the weekend.

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Apr 18, 2014

Thanks for this. I have a couple interviews coming up at credit funds so this will be especially helpful for me. Some of the above covered a lot of the strategy questions but I am hoping you could give me some insight on your general day to day and how your current lifestyle is compared to banking. What ultimately made you choose credit / distressed over other strategies?

Finally, any advice you can give on how to prepare an investment pitch for a credit fund would be very helpful. I feel I have a good grasp on value and l/s pitches but am at a bit of a loss on where to start for credit.

Thanks again, this is massively appreciated.

Apr 20, 2014
billy_mays:

Thanks for this. I have a couple interviews coming up at credit funds so this will be especially helpful for me. Some of the above covered a lot of the strategy questions but I am hoping you could give me some insight on your general day to day and how your current lifestyle is compared to banking. What ultimately made you choose credit / distressed over other strategies?

Finally, any advice you can give on how to prepare an investment pitch for a credit fund would be very helpful. I feel I have a good grasp on value and l/s pitches but am at a bit of a loss on where to start for credit.

Thanks again, this is massively appreciated.

Lifestyle is infinitely better compared to banking. In the office around 7:30 and leave around 6-6:30. The work is much, much more interesting as there is a lot of autonomy and very little handholding. I've mentioned the "why credit versus equity" before, but I'll paraphrase Boaz at Saba: if you like a stock, there's only two ways to express a bullish view (buy the stock or buy a call option). In credit, you have different parts of the capital structure (1L bank debt, 2L bank debt, senior secured bonds, sr unsecured bonds, sub debt, converts, trade claims, etc) you can invest in that offers extremely different return profiles. You can buy or sell CDS. You can put together a term sheet and structure a debt instrument. For publicly traded bonds, there's different parts of the curve. Opco debt vs holdco debt. I just think investing in debt is more flexible than equity.

I've covered the pitch advice before but I will say keep your pitches short (less than 3 minutes) and let people ask q&a. This forces you to know your stuff cold since you'll have questions coming from everywhere.

Apr 20, 2014

Thanks for your input. As a follow up, are there any books / blogs / etc youd recommend for learning about valuing distressed debt?

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Apr 19, 2014

This is a re-post from another thread, but I am interested in hearing your perspective on this.

I once had to complete a modeling test as well and come up with an investment recommendation for a company. The guys then told me that everything was great, but that they had expected me to call up the management team of the company I was looking at. Now, please keep in mind that the exercise was done for a $1bn market cap NYSE company (not amazing, I agree), but how are you supposed to get the management team on the line?? "Hi, I have this interview and I need to do a case study on your company. You got 15 minutes to answer a few questions?"

Apr 20, 2014
Matrick:

This is a re-post from another thread, but I am interested in hearing your perspective on this.

I once had to complete a modeling test as well and come up with an investment recommendation for a company. The guys then told me that everything was great, but that they had expected me to call up the management team of the company I was looking at. Now, please keep in mind that the exercise was done for a $1bn market cap NYSE company (not amazing, I agree), but how are you supposed to get the management team on the line?? "Hi, I have this interview and I need to do a case study on your company. You got 15 minutes to answer a few questions?"

If it's a public company, just drop their IR contact an email and explain just that. Most are happy to talk - that is their job after all. Best of luck with the interview.

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Apr 20, 2014

Thank you, very helpful.

Apr 19, 2014

Amazing stuff, valueisoverrated. Thanks for setting aside part of your weekend to do this!

Four quick questions if you don't mind:

1. How did you feel you stacked up compared to your peers around the time of your departure from your IB role? I know it's a weird question but can you maybe give an example as to the "extent of your knowledge" and maybe what your new fund expected you to know as a baseline during your interview, particularly in regards to modeling (I know it's not the be all, end all)?
2. Can you give a brief overview of your case study? Did anything stump you?
3. Where do you see yourself in 5 years?
4. Obligatory "is the CFA/MBA useful" in your space?

Thanks again!

Dec 27, 2014

Delete

Apr 19, 2014

Pardon my lack of familiarity with the phrase, but what do you mean by you look for "athletes" when recruiting junior members? Thanks for doing this!

May 28, 2014
Sidney J. Weinberg:

Pardon my lack of familiarity with the phrase, but what do you mean by you look for "athletes" when recruiting junior members? Thanks for doing this!

same question

Apr 20, 2014

Thanks for doing this. This is great. Interested in answers to questions as well.

Apr 20, 2014

What resources would you recommend to a L/S equity analyst looking to learn about distressed investing?

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Apr 21, 2014
Simple As...:

What resources would you recommend to a L/S equity analyst looking to learn about distressed investing?

second this request.

Apr 21, 2014
Simple As...:

What resources would you recommend to a L/S equity analyst looking to learn about distressed investing?

Moyer's Distressed Debt Investing is required reading. Theres a couple good interviews on Bloomberg about distressed opportunities. A lot of credit managers tend to be more hush-hush about distressed or special situations - you don't see a lot of managers go out and do a whole presentation on a thesis like Ackman/HLF. If you have the time, I'd spend a few hours going through a BK docket and try to back into the thesis. Why did they buy the bank debt vs the bonds? A lot of these questions become pretty apparent when you go through the filings.

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Apr 24, 2014

Thanks. Backing into a thesis for successful investments is one of the most underrated and underused methods of learning imo.

Apr 20, 2014

What factors go into how you determine who you give an axe to / How do you decide which broker-dealers to pay for ideas, and how much?

Apr 21, 2014
fro_bro7:

What factors go into how you determine who you give an axe to / How do you decide which broker-dealers to pay for ideas, and how much?

That's the traders job, not the job of an analyst.

Apr 21, 2014

How would a background in high yield research at a top am shop transition to a fund like yours? Seems like the skill set is transferable, but not something you see often.

Apr 21, 2014
thenextbuffett:

How would a background in high yield research at a top am shop transition to a fund like yours? Seems like the skill set is transferable, but not something you see often.

We've hired several people from a research background. Skill set is obviously very transferable.

Apr 21, 2014

Thanks for doing this - heading into IB and interested in moving to a distressed debt fund so this is a great thread. Couple of questions:

1) Do many in your field have JDs, and do you think a JD is helpful (enough to warrant the time and cost of the degree) when working at a distressed debt fund?
2) If your answer above is no, would it change to yes assuming an analyst starts overseas and moves to NY? Would the degree lend additional credibility etc?

For context, I'm going to be in IB in another country and will be getting an MBA in the US in a few years - considering a JD also.

Apr 21, 2014
notthehospitalER:

Thanks for doing this - heading into IB and interested in moving to a distressed debt fund so this is a great thread. Couple of questions:

1) Do many in your field have JDs, and do you think a JD is helpful (enough to warrant the time and cost of the degree) when working at a distressed debt fund?

2) If your answer above is no, would it change to yes assuming an analyst starts overseas and moves to NY? Would the degree lend additional credibility etc?

For context, I'm going to be in IB in another country and will be getting an MBA in the US in a few years - considering a JD also.

1. I think JDs are valuable for all the obvious reasons, but I'm not sure it's worth it to go to law school for sole purpose of going into distressed debt. Most of the JDs I know in the business ended up here BC they found law mundane thus they ended up lateraling from a top law firm to a distressed fund. Bottom line, it's definitely not a necessity for getting into special situations / distressed debt investing.
2. My answer is the same. I'd suggest spending a year in the other country, coming back to do a year of IB in the US, and making the buy side jump after.

Apr 21, 2014

Thanks, that's helpful

Apr 21, 2014

Do you have any book/resource reccomendations on your space? (modelling/ideas etc)

Apr 21, 2014

This thread is gold. Thank you.

Apr 21, 2014

I know you've mentioned that you (personally) might have a preference for IB anaylsts (vs. desk analysts / research / traders) - curious how those with Restructuring backgrounds are viewed by your firm / others. I'd guess it's a favorable background to have given some of the similarities.

Second, any insight on more experienced professionals joining distressed / event driven shops? IE, is it possible as an Assoc or VP to make that jump, or is it largely just IB analysts (and similar levels) moving in at the junior level, and lateral hires from other funds?

SB and thanks for your time - posts like this are (IMO) some of the most value-add to the WSO community.

Apr 21, 2014
BusinessGreek:

I know you've mentioned that you (personally) might have a preference for IB anaylsts (vs. desk analysts / research / traders) - curious how those with Restructuring backgrounds are viewed by your firm / others. I'd guess it's a favorable background to have given some of the similarities.

Second, any insight on more experienced professionals joining distressed / event driven shops? IE, is it possible as an Assoc or VP to make that jump, or is it largely just IB analysts (and similar levels) moving in at the junior level, and lateral hires from other funds?

SB and thanks for your time - posts like this are (IMO) some of the most value-add to the WSO community.

1. Definitely will hire restructuring analysts.
2. Generally only IB analysts and laterals from other funds. We have interviewed more senior IBD people but it's tough because 1) you're more expensive and 2) you don't have the experience to warrant that kind of compensation.

Apr 21, 2014

I am not sure whether you have answered this before, but can you share which headhunters are the best for HFs in your opinion?

Apr 21, 2014
Matrick:

I am not sure whether you have answered this before, but can you share which headhunters are the best for HFs in your opinion?

Dynamics, Search1, Options Group, and Robin Judson. The best jobs come through word of mouth.

Apr 21, 2014

Thanks for doing this! How big of a role does politics play since every fund is smart enough to do the valuation? Is it true to assume that most funds are pretty chummy in such a tight knit community even though they can be on the same side today and opposite side tomorrow? Does some fund command more influence/dominance than others? Any fund that you think highly of? Love the Oaktree/Midtown reference by the way.

Apr 22, 2014

Do many of the analysts at your shop have (or consider working towards) obtaining their CFA charters? I've heard from some people that DD/Ssits analysts don't typically pursue CFAs or hold them in as high regard as other fundamental investors.

Thanks for doing this by the way, great resource.

Apr 25, 2014
Anihilist:

Do many of the analysts at your shop have (or consider working towards) obtaining their CFA charters? I've heard from some people that DD/Ssits analysts don't typically pursue CFAs or hold them in as high regard as other fundamental investors.

Thanks for doing this by the way, great resource.

Yes, we have a few CFAs but actually more MBAs. Absolutely not a requirement (CFA or MBA). Frankly, a lot of people pursued MBA to switch careers (Big 4 TAS or sell-side to buy side). I'll leave it to others to discuss which is more relevant, but my point of view has always been that direct work experience trumps both. I know many don't have the luxury of going IB to HF, so I get why the question is relevant. Coming from the perspective of someone who has conducted buyside interviews, I'd say that I give very little weight to either. If you can impress with pure analytical rigor, that's what's important.

Apr 22, 2014

thanks this is very useful.

does your fund hire people from credit structuring desks from BB s&t?
I know there aren't many, but there are some desks close to the trading floor but heavily involved in SPV based, IBD-type deals.

Apr 25, 2014
fortran123:

thanks this is very useful.

does your fund hire people from credit structuring desks from BB s&t?

I know there aren't many, but there are some desks close to the trading floor but heavily involved in SPV based, IBD-type deals.

We haven't hired from a structuring desk as far as I know, but as I've mentioned, we don't close the door on anyone if they're smart. Ultimately, we look for candidates who have high intellectual horse power and enjoy numbers and investigative reporting.

Apr 23, 2014

Thanks for your insights regarding distressed investments. You mention many times in your comments about opportunities that can be seized from the shipbuilding industry.

Currently, there are many shipbuilding companies and shipping firms in South Korea that are in the distressed zone. Apparently, they go head to head with China, and many firms seem to have great track records and technological edge, but it seems that the long downturn in this sector has made many firms financially vulnerable.

The question is, have your firm ever considered investing in South Korean shipbuilding or shipping firms? If not, what made you against opting out from any potential investment opportunities? Would the reason be more of a business aspect, or something that has to do with the market per se, i.e. regulatory issues, non-existent distressed market except for npls, etc.

And what's your overall view on the shipbuilding sector? When do you think it will fully recover? If you made an investment at 50% of the par value right now, at which point do you believe a given company would be able to attain 100% of its face value?

Thanks.

Apr 25, 2014
sanjose04:

Thanks for your insights regarding distressed investments. You mention many times in your comments about opportunities that can be seized from the shipbuilding industry.

Currently, there are many shipbuilding companies and shipping firms in South Korea that are in the distressed zone. Apparently, they go head to head with China, and many firms seem to have great track records and technological edge, but it seems that the long downturn in this sector has made many firms financially vulnerable.

The question is, have your firm ever considered investing in South Korean shipbuilding or shipping firms? If not, what made you against opting out from any potential investment opportunities? Would the reason be more of a business aspect, or something that has to do with the market per se, i.e. regulatory issues, non-existent distressed market except for npls, etc.

And what's your overall view on the shipbuilding sector? When do you think it will fully recover? If you made an investment at 50% of the par value right now, at which point do you believe a given company would be able to attain 100% of its face value?

Thanks.

Haven't looked at shipbuilding, I've only looked at ship owners. My view on shipping is relatively straightforward: if you can buy cheap assets (either through cheap debt or an outright vessel) at the bottom of a notoriously cyclical industry, you can generate outsized returns without leverage. Charter rates for bulkers are up significantly since 1H13 and even secondhand valuations for 5yr 310K DWT VLCCs are creeping up. The problem is can you find assets that are cheap enough. As Wilbur Ross has said, the fundamental recovery is probably in the 4th inning but prices are in the 8th inning. Very low IRRs out there given 1) residual capacity in certain segments and 2) competition from a new class of buyers (PE firms and HFs). Finding the right opportunity is very difficult.

Apr 24, 2014

What's the background of most analysts/PM's at your fund? Can banking associates make the cut?

Apr 25, 2014
erhan08:

What's the background of most analysts/PM's at your fund? Can banking associates make the cut?

Banking associates can def make the cut. I'd say most of us are ex-bankers and traders from large BB. Some exceptions here and there. Many PMs and analysts have CFAs or MBAs.

Apr 25, 2014
valueisoverrated:
erhan08:

What's the background of most analysts/PM's at your fund? Can banking associates make the cut?

Banking associates can def make the cut. I'd say most of us are ex-bankers and traders from large BB. Some exceptions here and there. Many PMs and analysts have CFAs or MBAs.

Do you personally see any value in taking the CFA?

Apr 24, 2014

You said you are usually the only HF in some of the opportunities you find. Is it your mandate, AUM, maybe both... that affords you these opportunities? Thanks. Great thread.

My posts will be fraught with grammatical errors since I post from my phone. I will try my best not to post an incoherent babble.

Apr 25, 2014
One2Three:

You said you are usually the only HF in some of the opportunities you find. Is it your mandate, AUM, maybe both... that affords you these opportunities? Thanks. Great thread.

We are a global credit shop but have been involved in EM for a long-time. EM issuers are generally smaller and don't have publicly traded equity, so fall outside the scope of many funds (this becoming less and less true as US HY is so tight that even the biggest funds are now looking at EM). That "first mover" advantage is huge. And EM is just one example. We are proactive in sourcing new opportunities where people don't have the patience or know-how to look at.

    • 1
Apr 25, 2014

Thank you for this thread - very helpful and +1. Could you comment at all on what an actual bonus range might be for a first, second, third year analyst? I know it's extremely dynamic and depends on the fund, but I'm just looking for a ballpark figure. Is 1x base salary on the low-end? I have had trouble finding info on WSO...

Apr 25, 2014

Do any of the investment professionals at your shop have a background like this:

Long only value oriented shop out of undergrad;

So, no banking or transaction experience.

My posts will be fraught with grammatical errors since I post from my phone. I will try my best not to post an incoherent babble.

Apr 25, 2014

Just a few question; thanks for posting.

1. How much time is spent analyzing (i) the covenant package in the debt instruments to see how loose they are (restriction on RPs, investments and the like) and (ii) financial definitions and other definitions that feed into maintenance covenants?

2. How do you analyze the insolvency regime risk? Do you have lawyers you consult with, or is it more through your own research?

3. If your main goal is to buy debt at a discount, how much do you care about yield on the debt? Do you care more about where the debt is in the capital structure (1L vs. 2L or subordinated)?

May 4, 2014
isph:

Just a few question; thanks for posting.

1. How much time is spent analyzing (i) the covenant package in the debt instruments to see how loose they are (restriction on RPs, investments and the like) and (ii) financial definitions and other definitions that feed into maintenance covenants?

2. How do you analyze the insolvency regime risk? Do you have lawyers you consult with, or is it more through your own research?

3. If your main goal is to buy debt at a discount, how much do you care about yield on the debt? Do you care more about where the debt is in the capital structure (1L vs. 2L or subordinated)?

Good questions.

1. Don't spend a ton of time going through the covenant package, since a lot of HY bonds have a standard covenant package. Understanding the incurrence covenant is important and what the corresponding carve-outs are. Where going through the covenant package DOES matter is in situations involving 1) strange or esoteric bond structure that actually smells like a quasi-loan (senior secured bond that amortizes is backed by an important asset) and 2) in loan situations.
2. Both, but I'd say most of it comes from understanding creditor treatment in prior bankruptcies (if there are any).
3. Yield is important because it's obviously a reflection of price. But you're right - if I'm buying a bond at 20c and am trying to get par through an organized BK process, I don't really care about yield. Seniority in the debt stack is super important and is one of the largest drivers of how we think about credit investing.

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Apr 28, 2014

Where do you see the credit markets headed for in the next 1-3 years? Specifically, with credit spreads very tight in the HY market and default rates historically low in the distressed world, it's hard for me to see where things are headed. Is the focus going to remain with leveraged loans? I just can't see where this market is going as interest rates begin rising more consistently and with participation so saturated (everyone is in this space, consensus says it's overvalued, bubble like aspects in HY).

Thanks for doing this, amazing info!

Apr 30, 2014

Thanks for doing this AMA. I know this is a bit cheeky but would you mind giving a rundown of how to credit market has changed over recent years and, tying in with the previous poster, some of trends going forward?

Cheers!

May 2, 2014

Are people from rating agencies desirable at all? Presuming they covered a particular sector your fund is interested in.

May 5, 2014
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