Lean Private Credit Teams... Why?
After browsing many of the LMM/MM private credit fund bios (think $3bn and under), I've noticed that their teams are typically extremely lean - i.e. one to no associates. I've mostly viewed senior debt focused funds.
Why is this the case? Or is it the case at all (perhaps I just happened to observe multiple lean teams, thereby creating a bias)?
Very curious to know what the truth is as it would seem odd that a VP would be performing any excel work. If true, would this mean that private credit is extremely high level in regards to the excel/modeling work?
Private Credit is (often) built around a sourcing model so the senior guys bring in the "deals" and there isn't a lot of Associate-level modeling required- you often just repurpose the bank deck and sensitize it a bit.
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I’m an associate at an established middle market private credit firm (think NXT, Twin Brook, Antares, Maranon, Churchill, Monroe, Varagon etc.) and our deal teams generally consist of an MD, a mid-level VP and one or two associates. We run extremely lean in that at any given time, you can staffed on anywhere from 5-12 live deals. The grunt of the modeling and memo creation falls on associates, but there is significant contribution from mid-levels given how slammed everyone is at all times. LOL at the thought of an MD even knowing how to open an Excel model. We don’t perform as in depth diligence as PE sponsors, but we are still creating LBO models with different case scenarios and detailed investment memos. We are deploying material amounts of capital (albeit at a different part of the cap table), so we can’t just not underwrite it. Perhaps smaller team sizes are driven by lower fund returns compared to PE, which translates to less available overhead cost coverage.
Yes to all of these. I'll add that groups are also top heavy because no one ever leaves. Once you set yourself up at one of these funds, you probably have the best MD work/life balance there is, all while raking it in.
Yes another very valid point. I also think some people have the misconception that private credit can be a better lifestyle than private equity at the junior level - to be honest I don’t think it’s much of a difference, at least at my firm. It’s pretty sweaty as an associate as you are staffed on several deals running memos and models. VPs are contributing to & reviewing memos and models while also running the legal documentation. If you can make it to partner (which is more of the relationship management / investment strategy & guidance role), you can definitely set yourself up for a decent work life balance and great comp. But can be a long road to get there.
They rely on the sponsor to do deep diligence, and mostly going off of sponsors assumptions.
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