Most active credit shops in the market?

First year IB analyst looking to make the transition to direct lending, who are the most active direct lenders/mezzanine/opportunistic credit shops in the market right now?

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Comments (38)

Feb 8, 2019

I'd say Antares, Golub & Ares are probably the most active direct lenders. Others: Carlyle, Monroe, Twin Brook, Owl Rock, NXT, Varagon, Crescent, Guggenheim, White Oak to name a few.
Hope that helps

Feb 13, 2019

That's helpful thanks! Any insight into comp at any of these credit shops? Comp seems to be a lot less standardized than banking or even PE

Feb 8, 2019

Including bonus, I would anticipate around $100k at the analyst level and $150k as an associate

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Feb 13, 2019

Lol WRONG

Feb 8, 2019

Yup, I shouldn't have spoke on comp. The comments below are much more helpful.

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Feb 13, 2019

Cheeky

Feb 13, 2019
  • Golub: Analyst, Salary: 100K, Bonus 50K-70K
  • Antares: Analyst, Salary, 95K, Bonus 25K-45K
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Feb 10, 2019

Comp at the big names noted above will be comparable to what is seen in upper MM PE, sometimes more. Associates at these shops make $250K+ in their first full year (after stub year). This is very standard. Outside of the big names in credit, and as another poster mentioned, comp is all over the map and will vary a lot. Typically the smaller shops pay much lower than this, but Associates might have more upside that the bigger guys cant offer, such as faster promotion cycles, loose co-invest restrictions, and equity in the platform (especially if recently established). There's a lot of misinformation on this website about credit so feel free to PM me with any questions.

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Feb 12, 2019

I know for a fact that not all these firms pay associates that much. More like 150-175.

Source: work in private credit

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Feb 12, 2019

Largely depends on other factors as well such as location and whether the associates on average have prior IB experience. NY/Chi/SF typically pay more than an Atlanta/Nashville for example. Also private credit shops that recruit IB professionals on average will pay closer to the $200-250k as an associate mark vs. credit shops that hire associates with commercial banking or credit risk experience. For example, I know Antares notoriously underpays associates and will offer an IB analyst recruiting for private credit $150-160 as a first year when they would be making $225-$275 as a first year IB associate. But definitely see your point as to the $150-$175 mark for lower COL areas and associates that aren't from IB.

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Feb 12, 2019

Ding ding ding. Well said

Feb 10, 2019

Should've caveated that those are numbers I have experience with in NYC based groups that strictly hire Associates out of banking, as the below poster alluded to. I am also only referring to the biggest names in the space, and can't comment on comp outside of those guys. Thats where you will see the most variability.

Source: I was an Associate in one of the top shops in the space mentioned in this thread.

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Feb 12, 2019

Couple very active ones off the top of my head

Ares Management - Arguably the strongest direct lending/credit player in the industry

Golub - Very active in direct lending and have a great track record

Maranon Capital - Majority owned by Todd Boehly's (Former President of Guggenheim) family office, Eldridge Industries, has seen explosive growth within the last 12-24 months with a very bright future ahead

GSO Capital Partners - Blackstone'a credit arm, extremely active and great reputation

Apollo - Recently have been expanding their debt capacities and have long been known as a leader in credit

KKR - Have been leveraging their strong PE arm and have large mezzanine and direct lending arms

Madison Capital - Backed by New York life and have aggressively increased in AUM over time

THL Credit - Strong and very solid credit platform, also have a very solid tradable credit platform

Owl Rock (founded by a former GSO founder, head of GS LevFin, and an investment committee member at KKR), very very agressive in the market right now

MC Credit Partners - Founded by former Co-head of global leveraged finance at a Morgan Stanley

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Feb 12, 2019

Great list - would also add:

HPS Investment Partners - spun out of Highbridge Capital Management and JP Morgan, has about ~US$48bn in FUM all in credit, investing across senior all the way down to preferred equity. Is a top 5 global dedicated credit manager and operates one of the world's largest mezzanine funds

ICG - big credit shop from Europe, with ~US$38bn in AUM. Focused across the capital structure including preferred equity and mezz

Carlyle Credit Opportunities - Carlyle's credit fund, run by ex-HPS Partners MD, has about US$35bn in AUM

Bain Credit - the old Sankaty Advisors, with ~US$41bn in FUM

Great list here - http://docs.preqin.com/reports/Preqin-Special-Repo...

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Feb 13, 2019

I would be interested in learning how the shops listed above differ not just in reputation/comp but also in strategies. Particularly seeking input on Ares, Owl Rock, Bain, GSO, KKR, Maranon, and Carlyle. Thanks for sharing your insights on this everyone. Really appreciate because it's an area that's less easy to get insight on.

Feb 12, 2019

First of all, all of them have the capability to invest up and down the capital structure, so they are one stop shops. Ares, Owl Rock, and Maranon I believe have one credit investment team that looks at all the transactions so they don't split between half the team does senior or half does mezz like a Crescent would. All recruit former IB professionals so I believe pay is in line with IB associate comp. Owl Rock doesn't do much mezz but I know KKR, GSO, and Maranon have a decent amount of their portfolio in mezz. Bain, KKR, and Maranon all have very selective investment analyst programs where they recruit out of undergrad, usually take undergrads from ex. HYPSW + Michigan/NYU/ND/IU/USC. All very strong credit platforms. Ares has an an analyst program but only for PE arm, and Owl Rock recruits solely former IB/private debt individuals. GSO as expected from being Blackstone'a credit arm is also very selective in their associate hiring and has other strategies such as distressed debt, special situations similar to KKR, Bain, and Carlyle

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Most Helpful
Feb 13, 2019

Also important to distinguish who's running a publicly-traded BDC, and who's investing committed LP capital. Off the top of my head, I know Ares and Apollo have BDCs. Most are LP capital only - generally think this is the most standard structure. Many firms do both, however.

In terms of actual investing strategy, the usual approach seems to be unitranche lending (Senior and Mezz under one document). Offers borrowers less closing risk, and easier to to deal with one institution as compared to others. Many of the lenders take the "if this blows up, do we want to own this business" approach, which can be quite lucrative sometimes.

Also a big factor is initial cheque size. For example, HPS can write up to $1B at a time, and will deal with syndications after, which is a big advantage. Other funds can't come up with that so have to syndicate prior to issuance, which takes time, adds complication, etc.

One thing that isn't talked about is fund gearing. Can't speak for everyone, but a few out there are borrowing bank debt to fund, and using LP capital to fund the difference. For example, unitranche loan of $100 is lent out at 10%, but is funded by $75 of bank debt at 5%, and the balance by LP "equity". So $10 of income from the unitranche repays the $3.75 of bank debt, leaving $6.25 for LPs, which is a 25% return.

Just remember that these credit shops are competing with the syndicated loan market. So the credit shops are essentially doing what syndicated loan desks at BBs won't touch. Whether BBs won't touch because of the industry, size of issuer, special situation, or whatever, this is the opportunity set that direct lenders are eating up and charging premium rates for it. If the loan market takes a dump like it did in December, direct lenders get a bigger opportunity set as well.

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Feb 13, 2019

Further color connecting your comments about ownership structure and fund gearing: BDCs are limited by regulators to a 2:1 debt:equity ratio (increased from 1:1 in 2018), so your example of a $100 loan would have a maximum of $66 of bank debt funding. Obviously this limits equity returns. This also means that if a BDC is close to its max leverage, write downs can put it in a position where it has to either raise equity or sell loans under adverse conditions.

You mention the LP-model as well, but I'd note a third bucket of funds that operate as subsidiaries of insurers or pension funds (Madison Capital is owned by New York Life, Antares by Canadian Pension Plan Investment Board). They're putting their own funds to work seeking returns for their respective liabilities, as opposed to Ares/Apollo types raising outside funds from LPs which are possibly subject to redemption.

Feb 13, 2019

might be a silly question but is GS SSG a credit investor?

Feb 13, 2019

SSG encompasses a wide variety of strategies with different teams but a lot of what they do is credit yes

Feb 12, 2019

Would also include vista credit, barrings. capital one and BMO capital markets are technically regulated but also participate

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Feb 13, 2019

What distinguishes capital one and BMO from other banks with lev fin or sponsor finance groups?

Feb 12, 2019

I could be wrong, but I think the other banks main goal is to syndicate as much of the paper as possible, while those two are actually willing to take large chunks. Also I believe the banks play more in the corporate space (larger companies, rated issuers, seemingly less risk) where those two actively seek out holds in the middle market.

Feb 13, 2019

Still seems like vanilla commercial banking, just perhaps with a high risk appetite.

Feb 13, 2019

Barings has a pretty large private credit presence (~$11B) but I would say their bread and butter is the HY space and structured credit

Feb 13, 2019

I'm also work for a credit fund (focus on direct lending, but look at other situations as well). Not any of the ones mentioned. Can attest to higher comp than $150-$160k. I'm the youngest guy at my fund (3 years of banking, 1.5 years of buyside now) and am expecting $235-$285k post bonus (first full year after stub).

All places are different but I haven't heard of comp that is below $200k for similar positions / experience levels.

Feb 12, 2019

That's impressive! Do you mind disclosing your firms size in terms of AUM and latest fund size?

Feb 13, 2019

from your experience in the space so far, do you see any structured credit jumping over to direct lending?

Feb 13, 2019

Not sure what you mean by that

Feb 13, 2019

missed a word, sorry. structured credit people/professionals moving over to direct lending. sorry!

Feb 13, 2019

Very similar products, just different volumes of deals you look at and level of diligence.

CLOs are high-volume, low single-issuer DD. You're buying pieces of syndicated leveraged loans (traded) and essentially hoping that you can beat the benchmark via a combination of better than average default performance and higher interest income. Not unusual to have 50+ names under coverage by one person on a team.

In contrast, direct lending is high single-issuer DD. You're holding the credit to maturity, and if it blows up, you can't trade out of it. So lots of work stressing the credit, doing what I would call "PE-light" DD. Low total number of names in the portfolio that you work with compared to CLOs.

So skillsets are very similar, but structured credit is like indexing for leveraged loans, while direct lending is like the PE of debt investing. Making the transition will just come down to persistence, meeting the right people, and telling a good "why" story.

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Feb 13, 2019

Hey, thanks very much for this. Was just trying to get a glimpse of the work before I enter FT recruiting after junior summer in structured credit

Feb 13, 2019

Firms size is a little above $10 billion. DL fund is $1.5 billion.

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Feb 13, 2019

Would also add Crescent Capital to this list, usually LMM direct lending.

Feb 13, 2019

Any insight on great credit shops present in Europe, especially in France if any ?

Feb 13, 2019
dex23:

Any insight on great credit shops present in Europe, especially in France if any ?

Hayfin is one. Most of the big US shops listed already will be active in Europe too.

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Feb 12, 2019
Feb 12, 2019