Private Credit -> Public Credit Exits?
In this forum's view, how easy is it to transition from a large private credit platform (think Ares/Golub/GSO) to a public credit hedge fund? By public credit hedge funds, I am thinking of distressed, relative value, Cap structure arbitrage, etc. This transition would be at a junior level (3-5 years of experience)
If the transition is more common from private credit to some specific public strategies over others, any additional color would be much appreciated. Thanks in advance for your help.
Bump
Bump -- any insight would be greatly appreciated!
I think it is very doable within the first 3-5 years. Have seen a ton of people go from public credit --> public equity, public credit -- > private credit, and a couple private credit --> public credit.
In my mind if you have good buyside experience and a good story, any move should be doable in the junior stages in your career.
You may get "pigeonholed" by your interviewers, but if your story makes sense and you show that you are interested you should be able to move.
quick Q if I may - how have you seen exits from CLOs to broader public credit (incl distressed) and private credit?
I think CLO exits are a little more difficult. Generally in my experience, although not always true, but I'm generalizing, CLO analysts have to cover more credits with less depth.
My numbers are not exact here but the average CLO analyst may cover 60-100 credits. On the public side you generally have positions in fewer than these that tend to be more sizable, so you know them better. Private side diligence is of course even more in depth and could be more akin to private equity style diligence on credits.
I have seen it happen, don't get me wrong, I just think it is a little more difficult. Usually someone from one of those role would transition into a CLO role later in their career given less stress, less trading, more buy and hold, so on and so forth.
Thanks for the reply. I'm glad to hear you think the transition is doable with the right experience/story.
To follow up, any reason you think you see less private -> public rather than the other way around? Is it because people generally prefer playing in the private markets, or that there is more of a headwind to picking up a public investing skillset?
Probably anecdotal to be honest. Private credit is a hot part of credit right now so there's just more jobs at the moment.
Don't think it's a skillset issue, probably more personal interest and employment opportunities at the moment.
On the public side there's usually less people working an idea vs. private side is more private equity deal style. I think being able to see private side information gives you a ton of skills as to what you will be looking for on the public side without full information.
I wouldn't read too much into my comments, my main point to you would be that most switches are very doable within the early parts of your career.
Interesting thread - does anyone have good credit case studies to share please? Either private or public credit would be appreciated!
Private credit interviews typically involve a CIM or MP, and third party DD materials, and the candidates either come up with a write up & model in person or take home. On the public side, my limited interviewing experience (both personally and from friends) has largely been doing research on a given name and presenting whether / which securities you would invest in (e.g. 1L vs. 2L, Secured vs. Unsecured, Different Collateral Package (e.g. Intelsat), etc.)
trying to make the same move myself and I can't see why not
the broad analytical frameworks are similar e.g. capital structure analysis, legal knowledge, recovery analysis, general finance (TVOM, accounting, corporate finance, some Economics) etc.
i guess anyone interviewing you for public credit roles is keen to see if you understand how public markets are structured differently to private debt markets e.g. Monety market instruments (commercial paper, short term ssovereign, capital markets (leveraged loan, HY bonds, sovereign), role of brokers/block brokers/dealers etc.
Thanks for the insight. I was thinking the same thing (that it was largely the same skillset between private/public credit), but I wasn't sure how receptive recruiters/public investors would be to the transition.
Glad to hear you haven't run into any immediate issues with the move -- best of luck making it to the public side
I have a few friends at Pine Bridge and Ares working as leveraged loan analysts for CLO funds so here is my 2c. The general perception is that, given that you cover close to 100 names, you don't know the names that well and don't really do the deep dive analysis that is done at a HF. That's not to say you're not smart enough to do that analysis, it's just that you haven't done it. Also, you're generally holding loans to maturity whereas credit HF's are trading events/catalysts. For example let's look at Occidental (OXY) which was junked by Moody's and Fitch last week and has a sizable maturity wall that needs to be refinanced. The bond indentures allows the company to issue secured debt but one of the bonds (I won't say which one) has a far more restrictive negative pledge covenant (only allows co to raise 5% of assets in secured debt). At a HF you might buy that bond in anticipation that it gets tendered or taken out so as to free up secured debt capacity. So you spend a lot more time thinking about game theory and what other players will do compared to a buy and hold CLO guy who dumps a loan when it falls below 90. Again, not saying you can't learn this stuff but the general nature of the work is quite different.
The other thing I would say that could be helpful is to do more research on the popular names and prove to them that you can ramp up relatively quickly. One of the comments I've heard from recruiters is that for late junior to mid level hires, many shops want to hire people that have some knowledge around the names already.
This is accurate but i would say to write off CLO analysts as not knowing the company is more an ego-driven public perception (i.e. Big Short CDO manager scene) than reality. CLO analysts do spend a good bit of time asking Company questions and benefit from following the company for years (i.e. you'll hear the same PGIM CLO analyst on earnings calls for 2-3 yrs), but they may lack an understanding of fundamental drivers that can cause value in a loan to erode which is where a good public credit HF is meant to play. Which is to say, not everything in buying loans is about "company fundamentals seem okay, industry is okay, leverage is 3x, i will hold this for next 5 years" and the name of the game is hyper diversification vs. a good HF will build somewhat concentrated positions in their top picks.
Public-credit HF will be much more focused on the game theory, capital structure arb, bankruptcy and litigation-oriented theses as well as trading in and out of situations fluidly (i.e. buy a loan at 80 sell it at 90 and buy it again 75 to recycle their capital).
Pure CLO shops typically buy at par and hold. The lines blur for certain shops where the analysts manage both HF / CLO names where they might swap out candidates in their CLO book more than other shops.
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