Credit Risk or Market Risk?

What are the exit opps for each of these Risk positions? If I want to be a portfolio manager in the future, which one teaches more valuable skills? 

What are the advantages and disadvantages of credit vs market risk and which one looks better to future employers at GPs? Would market risk look better because of it's more quantitative role relative to credit risk or would credit risk look better because you interact more with individual companies?

Comments (5)

Dec 1, 2021 - 3:28am

Hey Intern in AM - Other, I'm the WSO Monkey Bot and I am sad to say, but this thread is lonely, so thought I'd post in here to try and help out. Some potential topics that might help:

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I hope those threads give you a bit more insight.

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  • Analyst 1 in Risk Mnmgt
Dec 3, 2021 - 7:15am

Somebody else will need to chime in on market risk. I knew people that did it vaguely, but not comfortable enough to provide any real details.

Credit risk definitely gives you opportunities to do more credit-related "things." Mind you, 90% of the people I saw in my credit risk program who exited went to lev fin, DCM, or industry coverage groups at the BB. Then that's where you can likely do whatever-go to CLOs, direct lenders, etc. You can kind of cut out a step and go to credit related programs directly, just it'll be harder and probably a smaller platform. Also worth noting that risk isn't attractive from a MBA adcom perspective so you need a step in between-you'll be placed in the finance bucket alongside people from IB if you do apply. I worked at a lower ranked BB, not really the top tier, but it was probably one of the better programs

Pros: Good training, opportunity to work closely with IB, see a lot of internal decision making, people in program were mostly good, exposure to modeling (albeit through templates), chance to work on interesting deals

Cons: So much ops related stuff (like talking to a 1000 dudes working in Bengaluru every day about like a comma or something), IB usually overrules risk if it comes down to the wire (like do you really think some guy in risk is going to prevent IB from dealing business with Leon Black's latest L+600 B-/B3 mess despite whatever terrible terms come through), you end up working long hours at stretches if the market is hot-100ish hours some weeks for me during 2020, management cut bonus comp in 2020 by a significant amount and felt okay doing it because credit risk isn't client facing usually-proceeded to lose immense amount of staff, have to work with a lot of internal tools that don't work/no one cares about, most processes with sponsors are continuing to get much riskier from a credit perspective (like being assigned lender counsel by the PE firm, having counsel start arguing for the PE firm, that's not really what lender counsel is supposed to do guys), lack of resources as compared to IB, and specialization after a certain level (feel like it's really hard for the levels above associate to leave to anything, but credit risk.)

So yeah. There's some problems in the credit risk department. I think it's still a valuable skillset, but you'd likely need an intermittent step before you would get towards the PM levels. Credit risk also varies a lot across the street-some programs are much closer aligned to BO and don't ever appear in front of clients, where as I had the opportunity to present once or twice to management. I think credit risk is fine to start off, but for future employers at GPs you might need a step in between.

Dec 6, 2021 - 1:48pm

Echoing what he said. Credit Risk has decent ops but only if you work at a BB and your coverage is heavily corporates and transaction focused. It's a great gateway to anything front office vs. any other MO/BO role. I was first in Credit Risk at a Tier 2 bank and let me say if I had stayed, maybe 20% chance I would have moved into FO. Switched to a BB credit risk role later and it was night and day. 

Our banking and structured finance deal teams actually invite some credit risk analysts (the good ones) to management DD calls, because they know the right fundamental and structural questions to ask, and a good credit analyst at a junior level is better than a capital markets junior, who are just pitchbook junkies. I was in CR before lateralling into a private credit investing role at a BB. Before my time, another credit risk guy lateralled as an associate and is now a PM at a billion dollar+ hedge fund. One junior VP lateralled and is now a Principal at a well known boutique asset manager. Several analysts / associates moved into research and other investment analyst roles including likes of BX / KKR / boutique funds. The commonality with all of us? We were focused on financing products (none of that derivatives / FIG stuff) heavily covering IBD transactions, going through DD and models with the bankers all night while getting paid like crap. If you are committed enough to pull through then you have all the skillset to work as an credit analyst in sell / buyside. Hardest part at that stage is getting an interview with someone who is not a stuck-up a-hole and actually tests your skills rather than judge your title. 

Market Risk exit ops is to PB Risk or potentially trading? I know 2 people who made that move in the past, but it was the right place right time for them.... way fewer than the credit risk folks who lateralled. I'm not sure if you want to go into trading these days anyway. 

Yes there are ops / admin stuff but you have that in EVERY job even if it's banking. Do you know how much time a IBD / DCM junior spends trying to run ROAE, figuring out tech issues, creating folders and shared drives and organizing documents for teams, putting together ppts that barely anyone reads, pulling comps that are all wrong (because no one has time to teach them), etc.

It's true you might not shut down deals very often, but it's still more often than relationship bankers who (often) want to chase every company under the sun at terrible prices / risk reward. Credit analysts are generally taught from an early stage to think critically about the materials presented, not to trust management spiels 100%. If you work on enough deals and join those discussions, this will show during case studies and interviews. 

I'm assuming you're asking this Q because these are the only choices available to you know. If your goal is to be a PM and work in buyside, def go for Credit Risk hands down. 

Dec 3, 2021 - 11:33am

so many more factors at play as you go down your career path that its barely even worth deciding between the two.

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  • Associate 1 in IB - Cov
Dec 3, 2021 - 1:51pm

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