Distressed vs Equity HF
Hi I am a 1st year analyst at a top restructuring firm, i’m deciding between pursuing these 2 career paths and am looking for guidance on which to pursue. I think distressed is interesting in the traditional sense but working on pitching hy credit vs getting exposure to the intricacies of a CEC type workout is less interesting to me if that’s where many distressed funds are headed nowadays (brigade, anchorage). I think event driven equity is interesting as well. I enjoy reading VIC writeups but dont enjoy making l/s equity pitches (some of the l/s value pitches - earnings as catalyst I dont really enjoy and subscribe to) I want my weekends back too pls
i also dont want to work banking hours
So as someone who had the option to do both but went the credit hedge fund route - FOR THE LOVE OF GOD DO EQUITY. You get paid multiples more on the top end and the work is more focused on evaluating and analyzing businesses and there is just a larger market for it vs. Distressed where 1 out of every 5 years maybe it gets interesting. The rest of the time you're just sat on your ass pitching stressy/event driven HY credits. If you like just doing more of the pure restructuring/workout stuff - try to join SVP or Centerbridge type places which focus on just that and no HY stuff. SVP is hiring a fuckton of people right now. When I say do equity I mean SM equity/tiger cub style not the multi-managers as it seems you're not super keen on short term earnings catalysts and stuff.
Also though, it doesn't seem like you really like hedge funds given that you don't like making l/s equity pitches? Do you like pitching in general?
Thanks for the response! I’m OP. My rx firm is not known for placing into L/S funds let alone tiger cubs (non pjt evr moelis laz). Would you suggest lateraling to a top M&A shop?
To answer your question, yea I dont particularly enjoy pitching vs the actual research but thats part of the job in both fields so ill consider it a nonfactor right now
Tell me you work at HL without telling me you work at HL
go to PE first. and then do l/s
curious where people from HL nyc are known for ending up, buyouts? credit(what type?)?, and what sort of HFs
Can you share some examples of the comp difference between credit & equity HFs (for like $10bn+ funds)? Does this apply for analysts/senior analysts or just PMs/partners?
It really depends. Let's say at the top end in a great year the best senior analysts in credit seats probably can net $5mm. In equities this is double at least. At the PM/Partner level, it's several multiples. There are Partners at Tiger pulling down $100mm+ and there are Partners at Brigade (credit shop) pulling down $3mm.
In a similar situation, although I'm in my 2nd year in rx. The advice I've received from older friends/alumni that I have reached out to largely lines up with above. Some have advised to go into event driven credit since my interest lies there but after weighing tradeoffs of comp/how often distressed gets interesting I think it largely becomes a personal decision on what kind of investing/asset class (equity vs credit) appeals more to you or is more intuitive .
moved from credit to equities - distressed is 5x the work for 1/5 the return.
How hard is that move? Like how hard would it be to move from Oaktree/GSO/centerbridge to a tiger cub/top fund after 2 years? I get that it's not common, but has that happened/is it doable?
If you're doing PE or Distressed PE at Oaktree or Centerbridge, it's a doable move as an associate finishing up your 2 years. Because you're not really doing credit. The move is hard when you want to go to an actual credit hedge fund to a tiger cub. Or like private credit, CLO, any type of actual credit-y stuff will close that path off pretty much.
What kind of personalities prefer equities over credit? One reason credit appeals more to me is because the returns seem more binary - either you're getting all your coupons + FV back at maturity, or you get your recovery value. On the other hand, equities seem so much more fickle
Realize that “recovery value” is literally just equity assuming we’re talking about a fulcrum security that’s being converted into equity in a restructuring. No more or less fickle than buying equity in a similar company in the the form of stock.
Furthermore, while stressed but performing credit (which distressed funds traffic in as much if not more than true distressed debt these days) certainly has a more narrow range of outcomes than equity, it’s still by no means binary. Should a HY bond trade at 90, 100, or 110? Even a 5-10pt difference in prices will obviously make a big difference in the returns you’re expecting.
I think what you’re missing is that credit hedge funds rarely enter a trade with the idea of holding a bond to maturity. The idea is to a hold a bond until the trade plays out, i.e. the bond trades up to what you believe is fair value or an appropriate price/yield based on your thesis, assessment of relative value, and catalysts/events playing out. This could be from 50 to 70, 80 to 95, or even 104 to 112. This can range from a few weeks/months to a few years, but generally speaking it wouldn’t be until maturity (unless repayment is itself the event). Holding to maturity is what direct lending / private credit funds do. Hedge funds trade, its a public markets game.
I personally moved from equities to credit/special sits.
Yes, any tiger/prestigious fund is a better gig than a stressed credit fund. But 80-90% of new jobs in equities are in platforms and that is a really shitty lifestyle unless you find the right PM. At the platform gig, you could be cracking 1mm as an analyst or you could be getting fired 2 months into the new year because your PM didn't handle the rotation well. The NPV of a pod career is similar or lower than a credit career with several times more stress. You have very limited visibility into your career and will almost certainly be switching platforms every 2-3 yrs.
It is definitely not easy to move from pod monkey role to prestigious/scaled LS fund, but yes miracles do happen. If you find the right PM at a pod (which is nearly impossible to diligence when you're not in podworld already), it might be worth it...otherwise.
tldr: pick tiger/eminence/vikings of the world over every credit fund (cbridge/gso/oaktree/etc) but if you're stuck between platform roles and credit funds, take another year or go for PE and try again in 2 years.
What do you mean by good MM PM, just one that has a long tenure and consistently makes money basically?
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