Credit Fund to PE: Is it Doable

Say post-banking you find yourself in a ~5 BN credit fund that invests mostly in senior / mezz debt. How common or doable would it be to shift to a PE fund after a few years? I'd imagine the skill sets largely overlap (modeling / diligence, investment memos & committees). Clearly the credit investor has a fundamentally different risk tolerance. I guess what it boils down is trying to answer the following questions:

1 - Are you pigeonholed into being a "credit guy" even though skillsets may overlap?
2 - Is there meaningful comp difference at the mid-levels or senior levels (i.e. when carry kicks in) to justify a move?
3 - How commonly observed is this in the real world? If uncommon, is it because credit guys are generally content to stay put, or are there large barriers to entry?
Thanks

 

Can't really comment on 2, but heres my take on 1 & 3

  1. Yes. The longer you stay in the credit fund the more you'll be pigeonholed. Honestly, this really isn't necessarily a bad thing, which brings me to

  2. Credit Fund -> Traditional PE fund is not very common, however many top (and non-top) PE shops have huge mezzanine funds where credit skills are highly valuable. Have definitely seen that happen before.

 
  1. Certainly! You will also struggle with headhunters who will see you as a "credit guy".
  2. Difficult to say. There is a smaller carry pool on the credit side but you get your carry usually paid faster than on the equity side. My person view on this is that, if you are an excellent investor with a wide network, you will open your own shop to maximize your earnings potential further down the line.
  3. Rather rare as "credit guys" make the specific decision to be on the credit side after IB. Most of them are simply not looking to jump to the equity side.

What's your rationale for wanting to move? Judging from your question 2, I am guessing that it is about earnings potential. In the end, the equity side speaks to a different kind of person.

 

Thanks, this is really helpful. Earnings potential is indeed the driver here for a move, but also for whatever reason I end up getting more traction and interest with the credit funds, and am rather deep in the process with one. The ideal is an exit to PE but the hurdles and competition encountered thus far have been challenging (more branding / group obstacles rather than preparation or performance - my group doesn't send people to PE and most people just stay here long-term or leave for something non-finance related).

 

Do you know how much mezz they do and what their exact strategy is? (Feel free to PM me) The reason why I am asking is because mezz lending can be PE light. The lifestyle tends to be better, pay is pretty good, you see lots and lots of businesses and you close lots of deals (it's extremely frustrating to not close a deal you have worked on for a year while working at a PE fund).

Regarding compensation, I know that Heidrich & Struggles published a compensation survey which will give you a better picture of compensation further down the line and you can actually directly compare it across strategies. It will at least give you a general idea. Let me know if you can't find it.

 

Any insight on the difference between working for the credit arm of a predominantly-PE firm versus a standalone direct lending fund or BDC? Are there significant differences in comp, selectivity, responsibilities, work/life balance?

 

I've thought about this as well and here is where I come out on it:

The biggest problem will be perception. If you are choosing to move to a credit fund, that is seen as a career move, not a stepping stone to a different job. You will also be expected to have a more specialized skill set and mind set as a debt fund associate than a typical IB analyst. You are therefore a less ideal candidate.

Another problem will be how your background compares to the background of who you will be competing with to get the job. Similar to breaking into IB from a non-target or non-traditional background, even if you are equally qualified, why would the firm take a risk on you when there are ample candidates from their preferred background: BB/EB analysts or other PE professionals. PE firms are way smaller than banks and are therefore even less inclined to take a risk on a new hire.

The solution -- I suspect -- is the same as whenever you are coming from a non-traditional background: network and hope a lucky break falls your way. Also, being willing to go back a year or two in seniority may help as well.

 

It's been done. If you go on linked in and search for PE professionals with a credit background you'll see some hits.

I think the real barrier to entry is just how established the PE recruiting system has become, there's an incumbency to it, and they have no incentive to really take in too many non-traditional (i.e. non-IBD / PE) folks... in actual practicality I think if you are a hard working finance professional with a positive attitude and doing well in credit you could certainly succeed in PE, more about getting the opportunity to do so. Not that many PE seats, and you have plenty of competition from the legions of bankers, MBAs, consultants etc who have an interest in the field as well.

 
Best Response

Not sure I agree with some of the sentiment on this thread. If you are in the credit investing arm of a big PE firm for example, id say that move is pretty easy if you’re interested in making the switch. At my MF I’ve seen it done several times although surprisingly most people in credit at these types of shops dont tend to want to make that move, so the sample size is small. Private credit / non-IG origination is primarily used for sponsor-backed transactions, LBOs making up a large chunk of that, so there is a high degree of relevancy between the workload itself and what goes into the investing decision. The credit fund that is taking down the financing portion of an LBO will conduct largely the same analyses as the PE firm investing in the equity when going to their respective investment commitees. Obviously the viewpoint will differ from both perspectives but the workload couldn’t be any more tangible. People tend to forget this point. Assuming you’re in a direct lending / private credit type of role, id say it is the most tangible job to PE itself given these circumstances.

If you are the lender financing the LBO, you also will have to be onboard with the Sponsor’s underlying equity strategy to ensure that will not create additional credit risk during your holding period. So within an investment commitee at a credit fund for this type of transaction, discussions around the sponsor thesis / rationale and how the PE firm intends to achieve that equity upside will be a large part of the credit discussion as well. This adds to the tangibility between the two positions.

 

Following up on this thread and your post as I currently have an MF Credit offer for my junior year SA internship. Not sure if l like credit as much yet but I know I like PE. Would taking this MF credit offer silo me into credit forever or should decline the offer and continue recruiting for IB internships?

 

Following up on this thread and your post as I currently have an MF Credit offer for my junior year SA internship. Not sure if l like credit as much yet but I know I like PE. Would taking this MF credit offer silo me into credit forever or should decline the offer and continue recruiting for IB internships?

Congrats, thats a great offer to have. I wouldnt recommend turning it down if you have nothing else in the hopper. Imagine declining and then not getting an IB offer. That would be a big problem. If you’re dead set on PE, id try to stall the MF as long as possible and try to jam in interviews elsewhere so you can secure something else before turning it down. If thats not possible id probably just take the offer. You’re too young to be “siloed” anywhere really and its all about how you spin your experience. Besides, if you’re doing MF direct lending (not sure based on your post) thats arguably more tangible to PE than IB itself anyways. You should have no issues spinning your experience in credit to other PE firms, or to a full time banking offer next year if you really wanted to do so. Also an internal transfer at your MF is always possible if you work hard for a couple years and get people to back you (despite what people on this forum say), although I wouldn’t necessarily bank on that but just know its more of an option today than it was several years ago. 

 

Hi iggs99988, any of these topics helpful:

  • Credit Fund to PE: Is it Doable debt. How common or doable would it be to shift to a PE fund after a few years? I'd imagine the ... Say post-banking you find yourself in a ~5 BN credit fund that invests mostly in senior / mezz ... credit guys are generally content to stay put, or are there large barriers to entry? Thanks ...
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  • Credit Funds (within PE funds included) Good Morning, A sign of the times- there seem to be a number of opportunities at credit funds that ... invest in sub investment grade debt, CLOs, and credit strategies within PE funds. I'm sure ... in PE, but it would be great if someone could place some numbers behind it. Thanks. CLO credit fund ...
  • Credit Hedge Fund equity, etc. I've been involved in several PE interviews but never interviewed with a credit hedge ... are some common q's that a credit HF would ask (im trying to get a sense of what the format is ... Investment Banking BB Private Equity Credit Hedge Funds ...
  • More suggestions...

If we're lucky, maybe I can guilt some users to help you out: tenthandbagby kinghongkong valueadd23

Fingers crossed that one of those helps you.

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

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