PE to HF Transition

Wanted to get some thoughts as to a transition from PE to HF.

I joined my current firm straight out of graduation. My vertical is the debt investment arm under a broader umbrella of a firm that also does traditional VC/PE. So think Sankaty Advisors and Bain Capital, Whitehorse Capital and HIG Capital, etc.)

There's some good information on a previous thread (https://www.wallstreetoasis.com/forums/pe-vs-hf-ls...)but wanted to see if anyone had any other inputs. Also very interested in comparing lifestyles between the two. While I surely don't mind putting in hours over the weekends, I've come to resent having such an unpredictable working schedule. My thoughts is that your hours will typically be better in an HF given you are working around market hours (which are set) vs working around transaction timing (which are unpredictable).

Thanks in advance.

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Comments (67)

Nov 21, 2017
7hr0wbak:

Wanted to get some thoughts as to a transition from PE to HF.

I joined my current firm straight out of graduation. My vertical is the debt investment arm under a broader umbrella of a firm that also does traditional VC/PE. So think Sankaty Advisors and Bain Capital, Whitehorse Capital and HIG Capital, etc.)

There's some good information on a previous thread (https://www.wallstreetoasis.com/forums/pe-vs-hf-ls...)but wanted to see if anyone had any other inputs. Also very interested in comparing lifestyles between the two. While I surely don't mind putting in hours over the weekends, I've come to resent having such an unpredictable working schedule. My thoughts is that your hours will typically be better in an HF given you are working around market hours (which are set) vs working around transaction timing (which are unpredictable).

Thanks in advance.

The unpredictable hours are probably better anywhere when you move up the food chain and have the ability to control the workflow.

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Nov 22, 2017

True but given the transactional nature and the market-related nature of the jobs, I would assume there would be key differences.

Regardless, I see my VPs and MDs in the office for as long as I am most of the time as well. So not necessarily tied to being able to control the workflow. Even out of the office, they have to control the workflow through their cell phones.

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Nov 22, 2017

Stay where you are, trade your own ideas in your personal account. Works for me. I always wanted to do the S&T -> HF thing, but it didn't work out. Consulting was my backup, but now I really enjoy my work. I scratch the trading itch by trading my account, and it's totally awesome.

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Nov 22, 2017

If you are married with kids, you need to talk this over with Mrs. Wifey.

If you decide to go this route, you are going to need to start cutting back on your lifestyle at least temporarily. The more money you save now, the more you will thank me when you are living on $150K/year working at a hedge fund.

-You are not buying that new car this year.
-No fancy vacations this year. You can go to Florida for a week if it costs something on the order of $5-6K for the whole family.
-Your budget for eating out is getting cut to $500/month.

Here's where I think you need to be to make this career change:

1.) Own your home outright. No mortgage.
2.) Have enough coming in in dividends every month to meet you and your family's basic needs. (Food, utilities, gasoline, insurance.) This is your license to tell whichever company you later work for and wind up hating to take a long walk off a short cliff.
3.) Have eight months of cash savings.

When you have 1, 2, and 3, and your family is prepared to live on $150-200K/year for a few years, you can jump to a hedge fund.

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Nov 22, 2017

i interned at a hf. the owner only makes as most as you are making. and the analyst were making 40k. they were doing l/s strategies.

Nov 22, 2017

Try making the jump to HF through networking before pursuing an MBA.

Nov 22, 2017

^^ It depends on the hedge fund. At Citadel, the owner makes a bit more than that and you maybe start around $100K. OP would be able to pull down more than that, but he will take a huge cut in pay moving over from PE.

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Nov 22, 2017

I agree with Manbearpig. Just trade on your own discretionary account. 100k for the mba + the huge pay cut doesn't seem worth it to me, unless you somehow end up at Bridgewater or something through networking.

Nov 22, 2017

I think the most important point is that OP has not even addressed whether he is willing to take a pay cut or not. He mentioned that he has a family to take care of.

OP should try to switch without an MBA. I think we can agree on that. But the other point is that OP can cushion the earnings cut if he starts saving now.

Dividend stocks are yielding ~5% right now. And OP probably knows if he can get an even higher sustainable cap rate on real estate. If OP can try to live on a $150K/year salary this year and save the ~$150K (net of tax) balance, he's now got $7.5K/year in dividends (at lower tax rates) to help cushion the loss of earnings. That makes a much bigger difference on $150K/year than it does on $400K/year.

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Nov 22, 2017

^^

IP, talking about how to live on $150-200k a year? Are there some extra zeroes in there you mistakenly added?

OP: If you absolutely need to be a full-time equity trader and you have reason to believe that you can make a living doing it... then I don't really see why not. It's clearly going to be difficult (or, perhaps more accurately, less easy) for your family if your salary's taking a hit so you can follow your dreams, but... as long as you've got enough for them to live comfortably on, what's the issue?

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Nov 22, 2017

OP has a family. If you own a 3500 square foot red brick house with a wife, two kids, and a yellow laborador who fetches the paper every morning out in Westchester county, I need to add a zero onto your cost of living. We are also talking pre-tax salaries. That $150K/year means $100K/year after tax.

A $800K house in Westchester means $15K/year in property taxes and probably another $10K/year in maintenance. The utility bill for a 3500 square foot home probably also works out to $300-400/month. Factor in internet + telephone for a family of four and you are adding $200/month; $250/month if you want cable.

So we're up to $32K/year just paying for the house.

Two reasonable domestic or Japanese cars will cost $5K/year to insure and maintain. Double that for European cars.

School fees and books are going to run $2K/kid/year. The train +parking is going to cost at least $300/month; let's call that $4K.

So cars and other non-negotiable expenses bring us to $45K/year.

Food for a family of four? $2000/month, maybe. $24K/year.

College savings (assuming in-state at SUNY, Rutgers or UConn) = $5K/year/kid= $10K/year

Interest and principal repayment on a $600K mortgage? There goes the rest of your savings. After tax, you are just barely breaking even. Maybe after the mortgage interest and property tax deduction (which you can't really count on since the pols are talking about taking it away), you are clearing $5-10K/year in your 401k.

I'm simply going off of where most professionals making $300-400K/year are coming from and the fact that he has kids. You typically have a house worth 2-3 years worth of pre-tax income.

If OP wants to switch to a hedge fund, he needs to move to a $400-500K house OR pay off the mortgage. It will also be helpful to have several thousand dollars a year in dividends to help cushion the drop in income. Either way, you may still need to cut back. I'm just covering the non-discretionary stuff here and you're barely breaking even on $100K/year take-home.

Switching to an HF is going to mean a lifestyle change for a few years. This is something you really need to talk about with your family.

Alternatively, if you can save $2.5 million in your current role over the next five to ten years, you'll have enough to put the kids through school and retire comfortably upstate. Every $100K you clear means $5K/year in inflation-adjusted dividends.

If OP either moved to or had a $400K 2000 square foot house in Connecticut, we cut $15K out of the home's maintenance, utilities, and property tax and another $16K out of the mortgage interest. Now we're looking at about $30K left over for savings and discretionary spending. The budget is still a little tight- I would still like to see the mortgage paid off, $100K of emergency savings in a CD, and some dividends coming in, but OP can provide for his family on a $150K/year income.

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Nov 22, 2017
IlliniProgrammer:

OP has a family. If you own a 3500 square foot red brick house with a wife, two kids, and a yellow laborador who fetches the paper every morning out in Westchester county, I need to add a zero onto your cost of living. We are also talking pre-tax salaries. That $150K/year means $100K/year after tax.

A $800K house in Westchester means $15K/year in property taxes and probably another $10K/year in maintenance. The utility bill for a 3500 square foot home probably also works out to $300-400/month. Factor in internet + telephone for a family of four and you are adding $200/month; $250/month if you want cable.

So we're up to $32K/year just paying for the house.

Two reasonable domestic or Japanese cars will cost $5K/year to insure and maintain. Double that for European cars.

School fees and books are going to run $2K/kid/year. The train +parking is going to cost at least $300/month; let's call that $4K.

So cars and other non-negotiable expenses bring us to $45K/year.

Food for a family of four? $2000/month, maybe. $24K/year.

College savings (assuming in-state at SUNY, Rutgers or UConn) = $5K/year/kid= $10K/year

Interest and principal repayment on a $600K mortgage? There goes the rest of your savings. After tax, you are just barely breaking even. Maybe after the mortgage interest and property tax deduction (which you can't really count on since the pols are talking about taking it away), you are clearing $5-10K/year in your 401k.

I'm simply going off of where most professionals making $300-400K/year are coming from and the fact that he has kids. You typically have a house worth 2-3 years worth of pre-tax income.

If OP wants to switch to a hedge fund, he needs to move to a $400-500K house OR pay off the mortgage. It will also be helpful to have several thousand dollars a year in dividends to help cushion the drop in income. Either way, you may still need to cut back. I'm just covering the non-discretionary stuff here and you're barely breaking even on $100K/year take-home.

Switching to an HF is going to mean a lifestyle change for a few years. This is something you really need to talk about with your family.

Alternatively, if you can save $2.5 million in your current role over the next five to ten years, you'll have enough to put the kids through school and retire comfortably upstate. Every $100K you clear means $5K/year in inflation-adjusted dividends.

If OP either moved to or had a $400K 2000 square foot house in Connecticut, we cut $15K out of the home's maintenance, utilities, and property tax and another $16K out of the mortgage interest. Now we're looking at about $30K left over for savings and discretionary spending. The budget is still a little tight- I would still like to see the mortgage paid off, $100K of emergency savings in a CD, and some dividends coming in, but OP can provide for his family on a $150K/year income.

Haha Jesus guys. I grew up in a family of four. My dad made maybe $150k pre-tax and my mom didn't work. We live in a nice house that I think was bought for like $300k. Then, when I was in high school, my family started living on far, far less.

Obviously I understand that everybody has their own reference point. If you're yused to $400k per year, dropping to $200k could be painful. And yes, you're family has to be part of the decision. But just wanted to point out, anything above $350k per year pre-tax makes you in the top 1% of the US. Families grow up on WAY less than that all the time - it can be done

Nov 22, 2017

Setting aside your household economics, what do do you really have to offer a hedge fund? The only particularly likely scenario I can see would be that a hedge fund would hire you onto a real estate desk but you say you don't like RE, and at the VP/post-MBA seniority level it's hard to make a case for yourself as a "blank slate" for potential employers. Do you have any experience in non-RE finance?

It's extremely hard to get any finance job right now (as I'm sure you know), and at the post-MBA level you'd better either have either a) extreme pedigree, b) directly relevant finance experience, or c) a unique skill-set like a terminal degree in a non-business field that gives you a competitive edge in analyzing companies in a given field. Otherwise, why would a fund hire you over someone who has at least one if not more of those things?

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Nov 22, 2017
IlliniProgrammer:

OP has a family. If you own a 3500 square red foot brick house with a wife, two kids, and a yellow laborador who fetches the paper every morning out in Westchester county, I need to add a zero onto your cost of living. We are also talking pre-tax salaries. That $150K/year means $100K/year after tax.

A $800K house in Westchester means $15K/year in property taxes and probably another $10K/year in maintenance. The utility bill for a 3500 square foot home probably also works out to $300-400/month. Factor in internet + telephone for a family of four and you are adding $200/month; $250/month if you want cable.

So we're up to $32K/year just paying for the house.

Two reasonable domestic or Japanese cars will cost $5K/year to insure and maintain. Double that for European cars.

School fees and books are going to run $2K/kid/year. The train +parking is going to cost at least $300/month; let's call that $4K.

So cars and other non-negotiable expenses bring us to $45K/year.

Food for a family of four? $2000/month, maybe. $24K/year.

College savings (assuming in-state at SUNY, Rutgers or UConn) = $5K/year/kid= $10K/year

Interest and principal repayment on a $600K mortgage? There goes the rest of your savings. After tax, you are just barely breaking even. Maybe after the mortgage interest and property tax deduction (which you can't really count on since the pols are talking about taking it away), you are clearing $5-10K/year in your 401k.

I'm simply going off of where most professionals making $300-400K/year are coming from and the fact that he has kids. You typically have a house worth 2-3 years worth of pre-tax income.

If OP wants to switch to a hedge fund, he needs to move to a $400-500K house OR pay off the mortgage. It will also be helpful to have several thousand dollars a year in dividends to help cushion the drop in income. Either way, you may still need to cut back. I'm just covering the non-discretionary stuff here and you're barely breaking even on $100K/year take-home.

Switching to an HF is going to mean a lifestyle change for a few years. This is something you really need to talk about with your family.

Alternatively, if you can save $2.5 million in your current role over the next five to ten years, you'll have enough to put the kids through school and retire comfortably upstate. Every $100K you clear means $5K/year in inflation-adjusted dividends.

If OP either moved to or had a $400K 2000 square foot house in Connecticut, we cut $15K out of the home's maintenance, utilities, and property tax and another $16K out of the mortgage interest. Now we're looking at about $30K left over for savings and discretionary spending. The budget is still a little tight- I would still like to see the mortgage paid off, $100K of emergency savings in a CD, and some dividends coming in, but OP can provide for his family on a $150K/year income.

^^^ this is why i love ip

but my kids will go to baruch or some no name community college with cornell aem transfer admission guarantee

i transferred and saved a ton. they should do the same...

Nov 22, 2017

IlliniProgrammer - value friking added or what? SB+

Nov 22, 2017

never settle...jump to a HF now or you will regret it on your deathbed.

Nov 22, 2017

IP any chance you could disclose your play for 5% dividends? Would it be worth it to start doing this while sitting on around 30k cash (2nd yr analyst)

Nov 22, 2017

Look at utes, MLPs, telecom, timber REITs, Europe.

Unfortunately, my corporate handbook has a rule that I can't recommend specific securities except as part of the ordinary course of business. (Your firm probably has that policy too).

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Nov 22, 2017
IlliniProgrammer:

Look at utes, MLPs, telecom, timber REITs, Europe.

Unfortunately, my corporate handbook has a rule that I can't recommend specific securities except as part of the ordinary course of business. (Your firm probably has that policy too).

BDCs are another asset class to consider.

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Nov 22, 2017

^^^ After Einhorn's book, I like to either invest in companies directly where I know the owner, or buy stocks with simple business models:

** Take natural gas here and put it there.
** Make electricity to power peoples' homes.
** House people in apartments in big cities
** Pull liquid stuff out of the ground and turn it into gasoline
** Connect two people who want to speak on the phone
** Grow wood and sell it to people building houses.

A BDC is a great investment opportunity if you can understand it. I might be a quant, I might have an engineering degree from one of the country's tougher engineering programs; I can't understand these things. If you can understand them well enough to invest and know what you're buying, more power to you.

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Nov 22, 2017
IlliniProgrammer:

^^^ After Einhorn's book, I like to either invest in companies directly where I know the owner, or buy stocks with simple business models:

** Take natural gas here and put it there.
** Make electricity to power peoples' homes.
** House people in apartments in big cities
** Pull liquid stuff out of the ground and turn it into gasoline
** Connect two people who want to speak on the phone
** Grow wood and sell it to people building houses.

A BDC is a great investment opportunity if you can understand it. I might be a quant, I might have an engineering degree from one of the toughest engineering programs in the country; I can't understand these BDCs. If you can understand them well enough to shrug things off when the shorts try to inspire panic about default and losses, more power to you.

IP, have to disagree with you here. It sounds like you didn't really "get" the issue at hand in Fooling Some of the People All of the Time. Einhorn is pretty clear that the issue was Allied/the management team, NOT BDCs in general (doesn't he discuss his long position in Fifth Street's BDC in the book?)

I would also argue that saying the business model of a utility or energy company is as simple as "take natural gas here and put it there" or "make electricity" is drastically understating the issues involved in analyzing those companies. I may be taking an overly-conservative approach since I typically deal with companies with a high degree of financial leverage, but anyone who's investing in E&P, midstream energy cos, utilities, etc without at least a moderate understanding of refining mechanics, dispatch curves, derivatives and the related hedge accounting, etc is playing with fire.

BDCs have mark-to-market risk and credit risk, but generally far less financial leverage than the kinds of companies you mentioned, and I'll take that over crack/spark spread risk, hedge execution risk, etc.

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Nov 22, 2017

IP, have to disagree with you here. It sounds like you didn't really "get" the issue at hand in Fooling Some of the People All of the Time. Einhorn is pretty clear that the issue was Allied/the management team, NOT BDCs in general (doesn't he discuss his long position in Fifth Street's BDC in the book?)

Of course. But it's a lot easier to trust someone to run a company if you don't NEED to trust them.

I would also argue that saying the business model of a utility or energy company is as simple as "take natural gas here and put it there" or "make electricity" is drastically understating the issues involved in analyzing those companies. I may be taking an overly-conservative approach since I typically deal with companies with a high degree of financial leverage, but anyone who's investing in E&P, midstream energy cos, utilities, etc without at least a moderate understanding of refining mechanics, dispatch curves, derivatives and the related hedge accounting, etc is playing with fire.

You're talking to an engineering major. We had two entire courses in college; I've been investing in oil companies and utes since I was a sophomore.

They're really quite simple, at least on a relative basis. You've got hydrocrackers, reformers, and fractionating towers. And oilwells that come in all sorts of shapes and sizes as well as gas wells. Then there's the logistics of getting oil to market. And yes, you have different limitations on the refined products a given refinery can produce from different kinds of oil, although a lot of technology and infrastructure has gone into dealing with heavy oil over the past twenty years. They're not exactly easy to understand, but it's a heckuvalot easier to keep track of a company with 13 refineries that have 2.5 mmbpd of capacity and 2.2 mmbpd of oil production than it is tens of thousands of business loans and investments overlaid with SPEs, SIVs, and crazy loan terms in a company whose management you may or may not trust.

The geologists and engineers that run the oil companies and utilities tend to be pretty simple people who try to come up with the simplest system to deliver energy to an economy that consumes 18mmbpd of oil and about the same, energy equivalent, of electricity. Yes, it's complicated, but it's a heckuvalot easier than keeping track of tens of thousands of small business loans made to random mom-and-pop businesses.

Most of the oil majors have debt ratios of less than 30% (15% for US ones) and liability ratios of less than 50%. And most of the loans are either callable or fixed rate bonds of more than five years that trade with credit spreads of less than 200 basis points.

I guess energy is complicated. But it's simple enough for an engineer to understand. I just do not get BDCs and never will.

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Nov 22, 2017

Really enjoying the dialogue.

IlliniProgrammer:

Of course. But it's a lot easier to trust someone to run a company if you don't NEED to trust them.

Not sure what this means.

IlliniProgrammer:

You're talking to an engineering major. We had two entire courses in college; I've been investing in oil companies and utes since I was a sophomore.

So is it easy to understand, or does it take two college engineering courses? I'm not saying YOU don't understand it, just that it's not fundamentally easier (or fundamentally harder) than a BDC, and that for the majority of people on here it may actually be harder. I'm not saying that energy and utilities aren't a great income investment (I have some MLPs and midstream oil cos in my PA and cover HY E&P and utilities amongst other industries). I'm just saying that, especially for the majority of people who aren't engineers, a BDC's business model (loan money to mid-market companies) isn't any harder to understand than an MLP and that the challenge of understanding the fair value disclosures is no harder than figuring out the hedge position disclosures.

IlliniProgrammer:

They're not exactly easy to understand, but it's a heckuvalot easier to keep track of a company with 13 refineries that have 2.5 mmbpd of capacity and 2.2 mmbpd of oil production than it is tens of thousands of business loans and investments overlaid with SPEs, SIVs, and crazy loan terms in a company whose management you may or may not trust. The geologists and engineers that run the oil companies and utilities tend to be pretty simple people who try to come up with the simplest system to deliver energy to an economy that consumes 18mmbpd of oil and about the same, energy equivalent, of electricity. Yes, it's complicated, but it's a heckuvalot easier than keeping track of tens of thousands of small business loans made to random mom-and-pop businesses.

Have you looked at any BDCs besides Allied? The arguments you're making against BDCs are mostly just parts of the back story Einhorn gives in his book, and not even the ones that are the important part. The issue with Allied wasn't valuing the individual SBA/SBIC loans BLX was making (admittedly hard to do), the issue was with the way that Allied was valuing ALL of its investments, and in particular in BLX in the context of the losses BLX was taking on its portfolio. The issues of SBA fraud came into play later and were corroborating evidence, but not part of the initial thesis or something that's inherent to the BDC business model.

Not every BDC makes SBIC loans; many are basically just mid-market/mezzanine funds. I know of one BDC that has a significant percentage of its investments in syndicated term loans that have fairly accurate secondary market prices I can find in my email every business day and of several with ~50 total investments.

What was happening at Allied vis-a-vis their fair value accounting was, if not fraud, something very close to it (what was happening at BLX was definitely fraud and Allied management was probably complicit but it's a slightly different issue.) The nature of a BDC accounting makes this part of the risk you take, but disclosure/financial reporting risk exists at ANY company and the industries you favor deal with extremely complex GAAP rules which provide plenty of opportunity to manipulate earnings (which was essentially the initial accusation Greenlight made towards Allied). I also find your argument that management of utility companies or oil midstreams are inherently more trustworthy than BDC management confusing.

IlliniProgrammer:

Most of the oil majors have debt ratios of less than 30% (15% for US ones) and liability ratios of less than 50%. And most of the loans are either callable or fixed rate bonds of more than five years that trade with credit spreads of less than 200 basis points.

Fair enough, as I said my experience is in a high-yield context.

IlliniProgrammer:

I guess energy is complicated. But it's simple enough for an engineer to understand. I just do not get BDCs and never will.

If you've never looked at one outside of the context of Allied/Einhorn's book I encourage you to give it another crack. I think you might be surprised and at the dividend yield on some of the BDCs it's worth the effort.

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    • 1
Nov 22, 2017
Kenny_Powers_CFA:

Really enjoying the dialogue.

IlliniProgrammer:

Of course. But it's a lot easier to trust someone to run a company if you don't NEED to trust them.

Not sure what this means.

IlliniProgrammer:

You're talking to an engineering major. We had two entire courses in college; I've been investing in oil companies and utes since I was a sophomore.

So is it easy to understand, or does it take two college engineering courses? I'm not saying YOU don't understand it, just that it's not fundamentally easier (or fundamentally harder) than a BDC, and that for the majority of people on here it may actually be harder. I'm not saying that energy and utilities aren't a great income investment (I have some MLPs and midstream oil cos in my PA and cover HY E&P and utilities amongst other industries). I'm just saying that, especially for the majority of people who aren't engineers, a BDC's business model (loan money to mid-market companies) isn't any harder to understand than an MLP and that the challenge of understanding the fair value disclosures is no harder than figuring out the hedge position disclosures.

IlliniProgrammer:

They're not exactly easy to understand, but it's a heckuvalot easier to keep track of a company with 13 refineries that have 2.5 mmbpd of capacity and 2.2 mmbpd of oil production than it is tens of thousands of business loans and investments overlaid with SPEs, SIVs, and crazy loan terms in a company whose management you may or may not trust. The geologists and engineers that run the oil companies and utilities tend to be pretty simple people who try to come up with the simplest system to deliver energy to an economy that consumes 18mmbpd of oil and about the same, energy equivalent, of electricity. Yes, it's complicated, but it's a heckuvalot easier than keeping track of tens of thousands of small business loans made to random mom-and-pop businesses.

Have you looked at any BDCs besides Allied? The arguments you're making against BDCs are mostly just parts of the back story Einhorn gives in his book, and not even the ones that are the important part. The issue with Allied wasn't valuing the individual SBA/SBIC loans BLX was making (admittedly hard to do), the issue was with the way that Allied was valuing ALL of its investments, and in particular in BLX in the context of the losses BLX was taking on its portfolio. The issues of SBA fraud came into play later and were corroborating evidence, but not part of the initial thesis or something that's inherent to the BDC business model.

Not every BDC makes SBIC loans; many are basically just mid-market/mezzanine funds. I know of one BDC that has a significant percentage of its investments in syndicated term loans that have fairly accurate secondary market prices I can find in my email every business day and of several with ~50 total investments.

What was happening at Allied vis-a-vis their fair value accounting was, if not fraud, something very close to it (what was happening at BLX was definitely fraud and Allied management was probably complicit but it's a slightly different issue.) The nature of a BDC accounting makes this part of the risk you take, but disclosure/financial reporting risk exists at ANY company and the industries you favor deal with extremely complex GAAP rules which provide plenty of opportunity to manipulate earnings (which was essentially the initial accusation Greenlight made towards Allied). I also find your argument that management of utility companies or oil midstreams are inherently more trustworthy than BDC management confusing.

IlliniProgrammer:

Most of the oil majors have debt ratios of less than 30% (15% for US ones) and liability ratios of less than 50%. And most of the loans are either callable or fixed rate bonds of more than five years that trade with credit spreads of less than 200 basis points.

Fair enough, as I said my experience is in a high-yield context.

IlliniProgrammer:

I guess energy is complicated. But it's simple enough for an engineer to understand. I just do not get BDCs and never will.

If you've never looked at one outside of the context of Allied/Einhorn's book I encourage you to give it another crack. I think you might be surprised and at the dividend yield on some of the BDCs it's worth the effort.

Nailed it.

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Nov 22, 2017

First world problems.

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Nov 22, 2017

Oh of course. I would note, however, that the NYC suburbs are more expensive than many other suburbs.

A house in Highland Park, IL that costs $400K would probably cost $800K in Westchester County.

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Nov 22, 2017
IlliniProgrammer:

Oh of course. I would note, however, that the NYC suburbs are more expensive than many other suburbs.

A house in Highland Park, IL that costs $400K would probably cost $800K in Westchester County.

True. I was suburbs.

Nov 22, 2017

Hey guys,

Really appreciate your thoughts! I talked with my wife, and she said she would support me on any decisions. But you are right, I would need to take a lot of risk if I want to switch to HF, and my family would need to bear with me. Probably the best is to stay where I am now...

Nov 22, 2017

OP-->
Interestingly enough, I feel very similar to the way you do about this. I also work in REPE and I do like it and the hours are manageable and the pay is good and could become extremely high, but I also often think I could be a great equities analyst and working at a L/S HF would be sick. I'm also early in my career (associate), and will likely get an MBA from M7 next year, but I think I have decided to stick it out with REPE afterwords because I know I'm more likely to get a top job, the pay is good (and can easily become exceptional at higher levels), the job involves working with cool people, etc... and MOST IMPORTANTLY, I can still follow the markets and invest for my own account, which keeps getting larger and larger. I don't go short, but I invest in stocks, bonds, ETFs (including commodities, etc.), etc... it's more than enough excitement, so long as you have enough money to work with (which I'm sure you will have). Beating the market is extremely, extremely satisfying. And I typically have at least an 2 to 3 hours of down time per day when i can research markets and stocks, which is enough.

Nov 22, 2017

How does the work at a REPE differ from other private equity firms?

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Nov 22, 2017

[quote=irresolutemonkey]Hi All, hoping to get some advice.

I've lived on a lot and I've lived on a little. But I always followed my heart. Follow your heart. Life is short.

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Nov 22, 2017

also interested in the answer to this

Nov 22, 2017

Any thoughts here? Would love to understand how much option value this role has.

Nov 22, 2017

Yes, seen it happen before. Also from turnaround PE to growth equity, in case you change your mind.

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Nov 22, 2017

Possible.
I did distressed/turnaround PE then switched to event-driven (credit and equity). Now I am more focused on equity.

But the PE was heavily debt focus though.

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Nov 22, 2017

hey man, have you read all of the interviews and AMAs we've had with Hedge fund professionals right here?

I'd start there. I am not too knowledgeable about HFs, but I will take a stab at your questions:

1. I think the more market neutral and short positions the fund has, the more likely they will be short term oriented and be watching their positions pretty carefully (especially in this market). For research into L/S hedge funds, you can use the WSO Company Database advanced company search by searching for keywords that would match your description. (you can filter by Industry, words in description,e tc).

2. Hedge fund recruiting is much more unstructured so you can start speaking with recruiters and other HF professionals up to a year before jumping all the way up to the month before. I'm not sure what the recruiting cycle is like for the larger guys and I don't think it's as crazy as PE recruiting which is well underway for Summer 2015, but it doesnt hurt to start reaching out early to some headhunters and express what you are looking for. Again, you can filter under industry by recruiter /headhunter (or you will be able to by this Monday - we lost that category by accident a few weeks ago but are putting it back).

3. I think if you're interviewing for L/S, you have to at least pretend like you are good at finding shorts and give them at least a few short ideas to show that you can do this work. It may be harder to justify, find a company with the right catalyst, but that can be what distinguishes the candidates that don't get a job and the ones that get snapped up.

Hope that helps.

Good luck!
Patrick

Nov 22, 2017

Why did you join a PE firm to begin with?

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Nov 22, 2017

Thanks, Patrick! That's really helpful. I had read a lot of the interviews but definitely missed some of them.

Near the end of my second year in banking is when I started to get really interested in stocks. I started reading investment books and blogs. I began to develop my own way of thinking about investing and based my purchases off of it (instead of just buying stocks recommended by research analysts like some of my peers). By the way, to date the best book I've read on investing is "Common Stocks and Uncommon Profits" by Phil Fisher.

Even though I began to get interested in public investing, I didn't feel ready to jump straight to a HF. I wanted more time to get exposed to investments and continue to develop my own framework for investing. PE has given me exposure to and made me think about investments on a daily basis. Because it's not as fast paced as HFs, PE has also given me time to research investment ideas on the side. In addition, I've learned a lot from hearing the partners at our firm debate investments at our weekly meetings. All in all, I feel like I've had more exposure now to investing and am ready to make the switch to a HF.

I also don't think I would have realized PE isn't right for me in the long term without having worked at a PE firm first. I probably could have gone to a HF directly after banking. However, I think I'll do better at a HF now that I've worked in PE for a year.

Hope that response is convincing.

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Nov 22, 2017

why would you do PE->HF? very different skill sets/mentality/knowledge base. not likely

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Nov 22, 2017
deal_mkr:

why would you do PE->HF? very different skill sets/mentality/knowledge base. not likely

basically false. depending on the PE firm and HF, the skillset / mentality could be extremely similar... the move happens regularly... of course, certain types of HF strategies wouldn't make much sense for a PE guy, but others definitely do... I'm not an expert on exactly which types of HFs look at PE people and why, but I can tell you that many do... I know someone who was at a big PE firm after is analyst stint in IB and now works at a fundamental value type HF and I also know another person who was in REPE after IBD and now works at fundamental value type HF (one of the best)

Nov 22, 2017

happens a ton. especially if there's a MBA stint in between.

Nov 22, 2017

Depends.... would make sense if the HF strategy was applicable....

As said over and over again, the more you stray from the norm, the harder it is to break into respective jobs (meaning you want a PE job, you do. IBD ---> PE OR related HF, or for HF you do IBD, ER---> HF, no PE in between...., you get the point. It is not usual for PE guys to jump to a HF without a very obvious reason)..

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Nov 22, 2017
JimmyDormandy:

Depends.... would make sense if the HF strategy was applicable....

As said over and over again, the more you stray from the norm, the harder it is to break into respective jobs (meaning you want a PE job, you do. IBD ---> PE OR related HF, or for HF you do IBD, ER---> HF, no PE in between...., you get the point. It is not usual for PE guys to jump to a HF without a very obvious reason)..

I completely disagree. OP - You often see this path at activist funds and or HFs who get long distressed debt for control post reorg.

Nov 22, 2017
DurbanDiMangus:
JimmyDormandy:

Depends.... would make sense if the HF strategy was applicable....

As said over and over again, the more you stray from the norm, the harder it is to break into respective jobs (meaning you want a PE job, you do. IBD ---> PE OR related HF, or for HF you do IBD, ER---> HF, no PE in between...., you get the point. It is not usual for PE guys to jump to a HF without a very obvious reason)..

I completely disagree. OP - You often see this path at activist funds and or HFs who get long distressed debt for control post reorg.

You are a jackass and give horrible advice, and are clearly not in industry. If you are, where is the star next to you name? Provide some evidence you know what the fuck you are actually talking about.

Carry on

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Nov 22, 2017

HF would be nice, but VC would be the best shit ever. Don't really see how it would get better than VC, you get to work with geniuses and their ideas....

"Don't quit. Suffer now and live the rest of your life as a Champion" - Muhammad Ali

Nov 22, 2017
pacman007:

HF would be nice, but VC would be the best shit ever. Don't really see how it would get better than VC, you get to work with geniuses and their ideas....

Being the genius with the idea, worth 50-100mm ?

Nov 22, 2017

Actually, he's right. PE->HF is a very doable path at value-oriented shops. I know several people who've made the transition to top-tier hedge funds both out of megafund pe and solid mm funds (new mountain, madison dearborn, midocean, etc)

having a star doesn't mean you're qualified to talk about hf recruiting, especially if you are, as your profile states, in venture capital

Nov 22, 2017
frank_reynolds:

Actually, he's right. PE->HF is a very doable path at value-oriented shops. I know several people who've made the transition to top-tier hedge funds both out of megafund pe and solid mm funds (new mountain, madison dearborn, midocean, etc)

having a star doesn't mean you're qualified to talk about hf recruiting, especially if you are, as your profile states, in venture capital

actually, prior to VC I worked for one of the top mega HFs, so I do in fact know what I am talking about. I didn't say it was impossible, I said it becomes more difficult to land positions as you stray from the norm (meaning IBD, PE, MBA, PE for career).

Again, I will reiterate - never said it is impossible. I am now at a top VC, and do not have a traditional background in the sense.

Carry on

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Nov 22, 2017

This is actually a common move, especially going into funds that are value oriented, activist, or distressed debt. I know for a fact that pershing square and baupost have recruited people from the megafund PE firms.

Nov 22, 2017

3rd Point and Owl Creek have at least a handful of ex-PE analysts as well.

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Nov 22, 2017

Curious about this as well. If not ex-PE guys, who else would value or distressed HF's recruit? Equity research guys, really?

Nov 22, 2017

ER and other sell-siders-restructuring bankers in particular for distressed. Sometimes from asset-management groups as well.

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Nov 22, 2017

bump

Nov 22, 2017

I'll try one more bump

Nov 22, 2017
  • fix spelling errors in your title, it's like sending a pitch book to a client with the wrong company name on it
  • PE teaches you to do due dilligence on a deeper level than banking which is valued at fundamental funds
    • 1
Nov 22, 2017
SpaceMarine:

- fix spelling errors in your title, it's like sending a pitch book to a client with the wrong company name on it

- PE teaches you to do due dilligence on a deeper level than banking which is valued at fundamental funds

  • No, it's really not, you hardo.
    • 2
Nov 22, 2017

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Nov 22, 2017
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