Buy-side vs sell-side path to credit funds

I'm looking to get some color on this:

I turned down a return offer in leveraged finance at a BB in favor of a HY credit research role at well respected AM.

The role offers a lot of flexibility to move between sectors/asset classes (structured products is on my radar), and so I thought that after a few years here and a CFA I might be qualified to join a credit fund (GSO, Bain, Oaktree, etc.) while skipping some brutal years in LevFin. If I really like the team, I could stay and try to move up the PM track.

But I've been doing some browsing on linkedin and it seems like a lot of places prefer to recruit from modelling heavy bank groups or distressed/turnaround PE. Is this mostly just for distressed groups? Could my background still make me a good fit for other credit investing roles toward the risky end of the spectrum?

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Comments (7)

Mar 7, 2020 - 6:21pm

There were serious lifestyle considerations. Plus there is always the chance for me to go back to banking with a seniority downgrade or after an MBA. I'm okay taking lesser odds with the upside of a better lifestyle for a few years.

That said, your response doesn't really give any useful information. Why should I have taken those jobs, particularly given that I'm not targeting distressed or special situation funds? What strategies could my background be attractive to? I'm not ready to run back to banking quite yet.

Mar 8, 2020 - 3:21pm

For credit funds (private debt) they tend to prefer lev fin groups just because of the nature of the roles are more similar - going through more in-depth DD, negotiation with sponsor / company, writing up detailed memos, etc.

Not too say it's impossible - given that you're in credit research there's always going to be crossover - but the nuances b/w diff roles does give way to the divergence that you're talking about.

Have you thought about more HY-like credit funds (i.e. not necessarily majority holds) that invest across the risk spectrum? If you've come through hairy scenarios before in your current role that might be viable

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Mar 8, 2020 - 3:51pm

Thanks for your input

Bain and Oaktree both specialize in alternative and distressed credit, but I know GSO and KKR do public high yield and leveraged loans, which is exactly what I will be covering in my job. I am not sure what kind of backgrounds they prefer for these roles, but it seems like the sponsor negotiation experience in levfin would be unnecessary.

My company does have a private capital group that isn't very good. If I get some experience there will that improve my outlook at all or will I be wasting my time?

Should I think about getting my MBA and/or going back into IB?

Mar 8, 2020 - 5:10pm

Yeah - I think for GSO and KKR (be it CLOs (investing in loans) or high yield) you'd definitely got some levergeable experience. Can't speak to the US but for EMEA I know some of the firms do recruit from non-lev fin backgrounds / tier 2-3 lev fin banks, and high yield research backgrounds.

Can't answer the second point unfortunately - you'll need to bear in mind whether it's MM focussed, etc.

Re the last point, people may opine otherwise, but from my standpoint you're in an absolutely fine place. If your goal is to go to private debt, maybe IB should be a consideration, but given the possibility of moving to those roles you should be fine - maybe tap a HH or two to see what they think.

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