AMA - research analyst at credit hedge fund

Value892's picture
Rank: Senior Baboon | 249

WSO was a great source for me at the beginning of my career. Figured it is time to give back.

My Background:

  • Graduated from a non-target school with a 3.5 GPA
  • Spent 3 years at a BB bank in Leveraged Finance
  • Currently, at a value oriented credit hedge fund, investing in leveraged loans and high-yield bonds across various strategies including private credit, par, and distressed debt

WSO Mentor

Also happy to chat 1-on-1 through WSO mentors. Here's my profile link: https://www.wallstreetoasis.com/mentors/453907

Happy to answer any questions people have.... Ask away.

Comments (69)

May 13, 2019

Thanks for doing the AMA. I'll start.

  • How did you get the job? What's the interview process like?
  • How much of your firm's portfolio is comprised of distressed debt? What's your firm's strategy towards it, i.e., do you aim to get involved in the workout process with a controlling position or more like a passive investor?
  • I just started as a sell-side IG/HY analyst (not a desk analyst) and in 2-3 years would like to switch to a credit HF. Do you think I'll have a shot at your fund/credit funds in general? I'm asking because it seems a lot of credit funds do distressed debt, and they usually recruit former RX/lev fin analysts. Not sure if I should aim for distressed fund or not.

Thanks again. Appreciate any thoughts you might have.

May 13, 2019
  • I networked with a bunch of people who had left the bank previously that I had good relationships with. One of which told me his firm might be hiring. I meet with one of the PMs first. Then was brought in to interview with the whole team (research analysts interviews more technical, PM interviews more fit). Finally did a case study and received an offer afterwards.
  • About 20% is stressed / distressed. Strategy is sort of a hybrid. We've been the leader on steering committees, and also have taken smaller positions with an investment thesis and see it play out.
  • It is definitely possible to make the transition over to a credit HF. If you specifically want to do distressed, I'd recommend reading up on distressed books (margin of safety etc)., and relevant news (reorg research, debtwire etc.) so you are aware of how the space works and what is currently happening.
    • 3
May 14, 2019

Thanks for the insight. I've read Moyer's book and planning on reading Marty Whitman's book. Will definitely check out margin of safety.

I'll ask two more questions if you don't mind.
* What's your typical research process like? Are you responsible for any idea generation?
* What's your next step? Do you see yourself staying in your current shop in the near future or you want other exposures, whether it's credit or non-credit? Thanks.

May 13, 2019
  1. Does your fund also do direct lending? If not how seamless would a transition from direct lending to a credit-oriented hedge fund such as yours be?
  2. Ballpark on comp, is it similar to PE?
  3. How was your gpa perceived when recruiting, was it a check in the box or did you have to work a bit harder?
Most Helpful
May 13, 2019
  1. My fund does do direct lending / private credit. I spend a good amount of my time in the space. And a transition from direct lending to another value oriented credit seat would not be very hard in my opinion. People care more about how you think about investing rather than which product you come from. Direct lending is diligence heavy which I've heard is a plus from recruiting standpoint. Although staying in the space for a career is entirely possible.
  2. Similar to PE at the junior / mid level (maybe a little less), but better life style for sure. $250-500k for someone with 3-6 years of investing experience (post IB). But 45 hours a week is typical for our firm. I'd imagine a counterpart in PE is making a little more but working 50%+ more hours.
  3. My GPA was perceived as good enough to get me in the door for an interview and honestly that is all that mattered for me. Once you are interviewing, its all about how you present, how prepared you are and how much you show you are willing to work to get the job.
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May 13, 2019

Great insight, cheers!

May 14, 2019

+1 sent you a PM. Thanks

May 15, 2019

Do credit funds care about MBAs like PE funds do? Or do most of the funds promote internally without pushing people to do an MBA.

May 15, 2019

I can't speak for all, but from what I've seen an MBA is not a major factor when interviewing at credit funds. I can speak from experience interviewing at more than one PE fund and hearing I would eventually need an MBA to move up the ladder (something I really did not want). At my current fund maybe 20-30% of analysts have MBAs. I don't anticipate getting an MBA for what it is worth and don't think it is an essential like it may be in PE.

    • 1
May 16, 2019

were you interviewing for credit roles within the PE fund or buyouts?

May 15, 2019

What's the biggest difference between what an analyst/associate at a credit hedge fund does vs. an analyst/associate at a CLO does when looking at analyzing a leveraged credit/lev. loan transaction? Thanks ahead of time.

May 15, 2019

It depends on the strategy (and by the way a credit hedge fund can have a CLO business as well as other strategies). Someone looking solely at loans for CLOs will be focusing more on broadly syndicated new issues, tranche sizes of $300mm at a minimum (and thus companies with min EBITDA of ~$60mm). Will also be investing in some higher quality (lower spread) assets as WAR / WAL tests (along with others) are part of CLO land.

If you are working on other strategies you could be looking at smaller companies, riskier assets, stressed names (whether it be operational issues, liquidity issues or other issues) etc.

The way you analyze credits is similar across the spectrum. You always are looking at valuation, LTV, cash flow profile, defensibility, credit documentation etc. Its just the type of strategy you are working on that changes the landscape of investments.

    • 1
May 15, 2019

Great, thanks so much! I figure if you are an underwriter at a private credit fund (CLO, DL, HF, etc..) you are truly getting to know the ins and outs of a business, writing up detailed credit memos, modeling and really understanding the term sheets/credit docs that it's very transferable work across the spectrum.

May 16, 2019

Hii
I am from India
I am currently a candidate in the CFA, FRM program. I am also pursuing my Masters. I have done MS Excel, Financial Modelling and VBA Macros. I have no work experience currently but I have been trading in the equity markets in India for about 3 years now, doing my own research ( Fundamental & Technical) with good returns.
I want to become a HF manager in the US. Is this enough to get me into HFs or at least Buy side in the US for a start?? I can build on that and work my way up to HFs. Please can u guide me?? I need help

LosBlancosAddict
May 16, 2019

PM me

    • 1
May 17, 2019

Hey
Thank you so much for replying !!!
Can u tell me how to PM you??
I am new to WSO and this app!!!
Thanks a million

LosBlancosAddict
May 17, 2019

Hi thanks for doing this. I'm 2yrs out of school, will hopefully have finished CFA this summer, and currently work for a BSL CLO manager, doing credit research/portfolio management for about 20 names (coverage will likely ramp up over time as I get more senior). My question relating to this is how transferable is my skill-set going to be if I wanted to go over to a direct lending/BDC type role eventually? We underwrite some MM/UMM type loans as well, but those are still syndicated deals. Would I be at a disadvantage to someone who has banking or origination experience?

    • 1
May 17, 2019

Short answer is yes you would be slightly disadvantaged. But it is all about how you spin the narrative. Being able to say you manage a portfolio already, go through an underwriting / investment process for your positions etc is powerful from a BDC / DL perspective. I'd imagine you get reps looking at marking term sheets and credit agreements. The difference for DL is it will be more documentation heavy so you'd have to sell that you have experience analyzing them and show you would be able to negotiate them for potential portfolio companies.

    • 2
May 17, 2019

Awesome. thank you!

May 17, 2019

This may be obvious, but the credit analysis for leveraged loans and high yield bonds is essentially the same, right? Obviously the two are different in terms of seniority, features, buyer base, etc., but would a leveraged loan research analyst and a high yield bond research analyst be pretty much on an even playing field? I ask because my bank separates the two.

May 17, 2019

In terms of investment / research analysis, yes very similar.

May 17, 2019

Appreciate the AMA. Did anyone at the fund start at a CLO Trustee? I'm currently working at one now and I'm trying to break into credit research. Would 2 years at a CLO Trustee, level one of the CFA and completion of Wall Street prep be enough to get an interview at a fund? I graduated undergrad from a non-target with a 3.4 gpa. Thank you!

May 17, 2019

I'm not aware of anyone here working at a Trustee. I'd be speculating if I said you could / could not get an interview to be honest.

May 17, 2019

No stress, I will get there eventually!

May 17, 2019

Are you NYC based?

May 17, 2019

Yes

May 17, 2019

What are good motivational reasons to do credit, especially direct lending, rather than PE?

Have interviews coming up with a credit fund (that used to be a PE fund).

May 21, 2019

They are just inherently different ways of investing. Credit investing you are worried about downside protection. PE you are looking at upside opportunities. Someone working in PE has to deal with the much more deal process oriented life style that is similar to banking. You don't do that as much in credit.

Jun 14, 2019

Yes, but that might not be an inherently good reason to be doing credit funds. Unless, what you are saying is that you get to focus more on evaluating investments and less time on the process itself.

Also, buyout transactions must also consider the downside.

May 17, 2019

Hi,

I'm currently working as a Senior Credit Risk Analyst in JP Morgan commercial banking. Our group manages a small portfolio of distressed real estate debts through out the country. Our job is to help the bank minimize exposure either by foreclosing, note sale, etc...

I am currently 3 years out of undergrad (non-target top 50).

Do you think I will have any chance at transferring to a credit fund as an anlyst/associate? Or would I my only chance be a Master or MBA degree?

Thank you in advance.

May 21, 2019

Unless you are looking at real estate funds it will be tough (but possible) to move into credit investing. I'd recommend trying to move within the bank to a levfin / IB type role before heading to the buy side. Or you can go the MBA route as well.

Jun 1, 2019

Thank you very much for your advice.

May 18, 2019

Thanks for the AMA.
I'll be finishing a nontarget MSF in December, and I'll be spending the summer in the HY private credit group for the IM arm of an insurance company (around 200BB AUM). I'm really interested in the leveraged/distressed space, and this co's culture is phenomenal. I'm wondering though if I should take a FT offer in Levfin if I get one in the fall. What would you suggest for someone who wants to later go to a credit hedge fund? Do any pro/cons come to mind? Lastly, if I don't get into Levfin, should I immediately try again for Levfin the next year?

JUST DO IT. Don't let your memes be dreams.

May 21, 2019

Getting any experience on the buy side while in college is valuable. If I were in your shoes I would learn as much as you can while you are there. You shouldn't think about jumping off board before you even start while you are in college. There will be plenty of time to move around in the early stages of your career.

For the time being soak up as much as you can in the internship and hope to get a FT job afterwards.

    • 1
May 18, 2019

Thanks for doing this. Can you explain the difference between credit funds that focus more on market / S&T factors vs. ones that recruit from Levfin groups? I am currently in the Levfin group of a MM bank and my understanding was that LevFin skill sets were more applicable to private credit, direct lending and BDCs than credit hedge funds that operate in public markets. If possible, could you name a couple of leading funds as examples that would focus on credit agreements, due dil, and term sheet factors vs. trading factors, especially ones that might have a focus on emerging markets? Thank you in advance!

May 21, 2019

What's the difference between what an Associate in Direct Lending does vs. an Associate in Direct Lending that works on the capital markets side? Any ideas on types of work, comp, work/life balance, etc.

May 21, 2019

Is the fee structure 2/20 for your fund? What's the return hurdle? Are you getting carry? Roughly how much?

Do you have your own book? How big? Or do you have to write investment memos and pitch to the PM?

May 22, 2019

Fee structure varies based on the strategy. Not one overarching structure for the firm. Return hurdles vary (though roughly 7-12% based on strategy and leverage used). Not getting carry, have only been here ~2 years.

My book is a little over $500mm. Yes we write IC memos and pitch to PMs. The PM owns the overarching portfolio (will decide how much to buy etc), the research analysts own their individual names.

May 24, 2019

Thanks for doing the AMA, I'm currently an analyst at a Rx consulting group (FTI, Alix, A&M) and am preparing for potential interviews over the next few months (Still just having coffee chats but have gotten some good traction) as spots open up for analyst positions (1-2 yrs experience) at a few credit funds, some under the CLO strategy and others in opportunistic lending. Do you have any recommendations for interview prep guides or course modules on credit modeling and underwriting concepts? Any good books would also be appreciated. Thanks!

May 24, 2019

Will PM you

May 24, 2019

Would you also be able to send me any resources you may have? Currently a 1st year analyst in a LevFin group, recruiting exclusively for credit shops so any help would be much appreciated!

May 29, 2019

Thanks for the AMA Value892

I have a 10 week internship at an L/S equity hedge fund in London this summer which could possibly lead to more internships there or even a full time job. If I were interning at your fund (hypothetically) and you were looking for new hires, how could I best position myself to get hired full time?

May 29, 2019

The most impactful thing you can do is show you care about your work and your interest in the fund / strategy. I would triple check every email / spreadsheet / ppt etc before you send anything to make sure your work is 100% correct. Of course interns (and everyone) make mistakes, but cutting down on the easy ones is a simple way to get ahead.

I'd recommend taking time to get coffee or lunch with every person you can and learn about their experiences, what they like / don't like about their role or the fund and ask them advice on how to succeed as a young professional. You should be the first one in the office and the last one to leave (and your body language should always be positive, even if you are sleep deprived or having a bad day).

Make a list of questions every day and (when appropriate!!) ask people to sit down with you for 30 minutes to go over some things with you. Before you ask them questions, do a quick google search to make sure none of your questions are an easy search engine answer. People are lying if they say no questions are dumb questions.

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May 29, 2019

Thanks that's very helpful. Could you tell me a bit about when you first started at the fund you're at (i.e. what went well, what didn't, learning curve etc.)?

May 31, 2019

Curious what your options are / what you've seen guys in your space do a few years out if they get sick of their gigs? I worked at a hybrid distressed pe fund (public + private) and liked public side a lot more but always worried that the skillset isn't really transferable to anything conducive to having a better lifestyle (in terms of stress once you get more sr and have a family & hours). Any interesting exits you've seen from your fund/peers?

Jun 12, 2019

I think my options are to move to another credit platform (I can likely do stressed or private credit, I don't think I would be qualified for a work out distressed shop), or make a move into public equities investing. There are likely other options out there but those are the ones I would be interested in.

From people I have talked to on the credit side, if you are not at the mega funds that are structured like banking, your lifestyle is pretty good.

    • 1
Jun 18, 2019

Why do you feel you couldn't work at a distressed shop? From above it sounds like you do have experience in work outs?

Jun 12, 2019

I have an opportunity to join a mid sized credit HF on the operations team out of undergrad. I was wondering if it is realistic to get over to the investment side after a few years of hard work along with CFA/networking?

Jun 12, 2019

Yes, I think that is plausible. I'd recommend taking the CFA as early as possible in your shoes. The head trader at my firm used to work in operations when he started his career so I know of people who have made the switch.

    • 1
Jun 14, 2019

Thanks for response. Do you think this is a good starting job or should I keep looking for front office roles?

Jun 12, 2019

Hey,
what are your opinions on starting on a credit trading desk of a BB (distressed or HY)?
Is it possible to transition to a credit HF or are backgrounds in Levfin/RX much more sought after?

Jun 12, 2019

Depends on the type of HF you are looking to go to. Plenty are trading driven vs fundamental driven.

Jun 15, 2019

Sorry to bother you again but I am interested in knowing the precise differences. Are they different in the ways they handle fundamentals or is it more about the execution?
And what is the risk profile/''type of person/fit'' at each?

Jul 2, 2019
Comment
Sep 18, 2019