Private Credit vs Private Equity
Hi All,
I am in the fortunate position to have to decide between two offers with similar compensation and benefits.
First one is to join a credit fund that is growing really fast but still a bit unknown that has over $10 billion in AUM. There is plenty of room to grow and make a career as the fund is growing, hours are really good and I really like the culture.
The other option is to join a PE MF (BX, KKR, Carlyle) to which I am mostly attracted by the prestige. It would also be a really interesting job but there is no W/L balance and I do not like its culture. I also think that down the road there are plenty more exit opportunities if I choose this option.
Should I go for prestige or fit here?
There's no right or wrong answer here - this is a personal one.
I think you need to think long and hard about whether you are reasonably certain that you would like to make a career in credit investing. Map out the responsibilities and day in the life at not just the associate level but each promotion thereafter in PC or other credit strategies. Compare that to the responsibilities and path of PE as well the typical exits following a stint in PE. The variable here is that PE keeps more doors open - think through corp dev, strategic finance, etc. If you look at the options you've mapped out after this exercise and aren't sure what you want to do, I'd take the PE option. As you learn more about the investing path and what it's like to live it, you can make a move from PE to PC down the line, but the reverse is much more difficult. If you are reasonably certain you would enjoy a long-term career in PC, I'd take the PC offer.
Many people, including myself, pick their post-IB role on a bit of a whim ("everyone's going to PE", "I don't know what I want to do but this option has more flexibility", etc.). Take the time now to figure out what you're most interested in (to the extent you can), and if you develop a level of conviction, jump to the end goal now. If you really aren't sure, that's okay too. If so, preserve the optionality.
Congrats on two great offers. If you wouldn't mind PMing me about the PC firm, I'd really appreciate it.
Can you walk us through the specific responsibilities in a PC career? And how does it differ between direct lending vs. mezzanine vs. growth lending vs. distressed?
Is the PC opportunity Kennedy Lewis?
Bro why attempt to dox even the firm name?
Hmmm maybe because that is the firm and the OP could DM to ask for more insight.....might just know a few people there
Private Credit has been growing exponentially and the amount of growth potential in the asset class is huge for asset allocators in the next decade.
See: https://www.institutionalinvestor.com/article/b1vdhdbryr7dkp/Private-Eq…
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Think it depends here. Which team at the MF and in which city? Those are all American MFs, so if you had the chance to do buyout PE in NYC, would take that without blinking an eye - those are the best / most coveted opportunities in finance. If you're looking at one of the growth / secondaries / non-buyout arms or non-NY cities, then would be much more a function of what you personally prefer.
LevFin analyst here, that is moving to the buyside next week. I was looking at both PE, PC and ended up going to a shop that can do either (Junior Debt / Minority equity and Majority Equity).
Most people can move to private credit from the equity side but moving to the equity side from private credit will be much harder due to the lack of operational experience, valuation work etc. So unless the private credit shop offers you some kind of flexibility in terms of the deals they do (i.e. invest across the capital structure, minority equity vs. all senior/unitranche deals) I would encourage you to go down the PE route for more optionality.
Credit can also get boring very quickly - and this is from an ex-LevFin guy, the market is almost saturated for basic deals (unitranche, senior stretch and the likes) to the point where its the fund with the most competitive termsheet that wins - its not really fun to be given 2 weeks to do your DD like a bank doing an underwrite and churn through termsheets, or at least it was not what I was after having done 2+ years of that at a BB.
Happy to answer any questions.
To be fair - MFPE is a lot of the same given all the deals in that size band are broadly marketed processes for the most part. No real unique sourcing angle and bilateral negotiations. One of the nicer (if less lucrative) aspects of middle market PE, and special sits lending as well (which also has the upside of being more lucrative than PC)
Right on the money.
PE is generally pretty saturated as well. Compressed timeline to sprint at an asset, every Partner and Principal thinks they have a “proprietary angle” because they met the CEO 2 years ago and grab lunch with him once every 2 quarters. Asset goes to the bidder with the most aggressive term sheet… that’s how it’s basically done everywhere except (to some degree) in VC land.
Portfolio company/board involvement can be a plus if it’s an interesting thesis/business. If it’s a building products roll up or some bullshit like that forget about it.
Comes down to if you like the firm, like the people, can see yourself making a career there, is growth headroom to do so.
If you’re relatively junior and seem unsure what you want to do longer-term, second the PE route. You can go from PE to PC but not vice versa.
This isn't directed at you, but I found it appropriate as everyone I talk to recently ends up saying their industry is commoditized and getting boring.
90% of folks leave IB pumped for their investing role and a couple years later come to the same conclusion. It's not just PC and MF PE. You see it across the board. PC, MF PE, UMM PE, MM PE, HF, etc. Everywhere you go, you realize most investment firms are playing a commoditized game at this point. There's maybe 5% of firms across the board that have a truly differentiated process (Thoma Bravo, Apollo, etc.). We can debate that exact %, but its very low.
I wanted to add on here just to say MM PE is the same deal. Every PE firm has their "angles" that check the boxes of their investment committee, and there's probably a handful or so of these "angles" across all commoditized buyout firms. You work really, really hard to appease your firm's historically approved "angles", so you almost convince yourself that you're differentiated. But at the end of the day, you're not. Your new CEO isn't statistically likely to be any better than the CEO that PE firms A, B, C and D also have lined up for the same deal. Your underwriting of a particular thesis in advance of the deal allowed you to convince your committee to both sprint and pay that extra turn to win a process, but it's not actually differentiated. There's too many firms generating the same angles now. Firm performance will likely track your style boxes and +/- luck. Don't get me wrong, you have to do everything right in PE (bring the right board members, structure effectively, etc.) - but there's a ton of MM PE firms and most have the process down to do these things right.
Grass is always greener. If you've got good comp, WLB and interesting enough work, that's all you can ask for.
At the end of the day, the special sauce is your ability to get LPs to give you their money and take a fee on it. That’s what it comes down to.
Apollo guys are ruthless deep value blood suckers. There’s nothing novel about fucking your creditors and vendors and employee pensions. Being a scoundrel is one of the oldest tricks in the book.
Thoma happened to be at the right place (software) at the right time (~2010) and they were smart enough to smash the gas pedal when they realized they had a hot hand. There’s a PE firm specializing in every variant of the market… healthcare, financials, energy, etc. So naturally there had to be one on the software square on the roulette table… and it was TB.
Sure they’re smart and thoughtful and don’t make unforced errors, but Apollo/TB guys aren’t 2-3x smarter than Bx guys. For every special sauce marketing pitch, there’s a cynical rebuttal. Apollo doesn’t have a patent on their investment style. There’s zero barriers to entry or IP outside of the LP incumbency and protection pension fund bureaucrats get from giving their money to a blue chip money mgr.
Success in this industry (now) is a combination of branding earned 20 years ago due to well-earned success when the industry was fledgling, marketing, and being at the right place at the right time.
All these industries are mature. They’ll become much less lucrative over time. When the public MFs started optimizing their businesses… that was the beginning of the end. They will keep optimizing. One this current growth glut runs out, they’ll turn to managing expenses (comp) to give public shareholders the earnings growth they crave.
That said, it’s still pretty fun to poke around at companies for a living and if you get paid $3m to do it instead of $8m… you’re still making like 5x more than some stupid fucking surgeon.
agree with this take. I took a private credit role at a startup fund in southern US for a wellknown sponsor. The MFs are simply asset gatherers and most do very little- instead, they see revenue growth, high margins, low capex, ok-to-good industry: BOOM you get a 6x+ read. The junior space is very hard to deploy capital but the diligence is so much more interesting because you are forced to think like an equity investor (jr. debt used to often get coinvest, but now mostly a thing of the past).
I have seen plenty of MM credit guys move to MM PE if they are doing heavy diligence. Be sure to save the documents on deals you really grind on.
Comvest?
Can you post an update on thoughts regarding your new buyside role? Likes/dislikes? What is the due diligence process like, can you describe in detail? Thanks!!
From a previous post:
"Just a few generalized thoughts (I recruited both PE and PC):
PE: Focus on equity (Growth, Buyout, etc), Deeper analysis in fewer companies, Few new transactions each year with good amounts of PortCo work, Financial engineering and/or operational improvements to create IRR, Lifestyle comparable to banking early on but gets better, Very good pay with Carry, Career Move or opportunities include: B School, Other PE, HF, or finance roles, Industry or start-up move, etc.
PC: Focus on various types of credit (1L, Senior Stretch, Unitranche and/or 2L, PIK, Warrants), Less deep analysis focusing on credit story but look at numerous companies, Several new transactions each year with some work on existing investments, Principal payback and Interest coverage to create IRR, Lifestyle much better (8:30am-8:30pm with some weekend work), Very good pay (generally a little less than PE) with less volatile Carry, More a career move or opportunities include: Credit HF, other debt strategies, maybe PE or industry if you want.
PE and PC are kind of like Yin and Yang, won't exist without the other and are complementary. Though, very different mindsets and strategies. Both great careers. "
Sort of unrelated piggyback, but can anyone provide some thoughts on how much of the PC ecosystem is just built on the success of the PE industry?
I see lots of people who are skeptical of PE in the long run advocate for PC instead, but from what I’ve seen on the IB side, 90%+ of PC (and the most lucrative side that’s grown a lot recently) is a function of insane PE industry growth, and any downturn in PE in the long run will significantly impact PC as well. I know risks are more hedged on the PC side in terms of performance, but seems like an industry downtown would impact PC just as much in the long run? Just curious what PC would look like without such a hot demand for credit from PE
Very interested in that as well
A lot of PC is indeed predicated on supporting PE either through new buyouts or portfolio company acquisitions. That said, there is a decent portion at some shops that is non-sponsored but would say 80%+ of PC shops would suffer if PE activity fell
Even if PE activity slowed down, they will have to deploy capital => PC guys will have to deploy capital too. PC guys can play other areas of the market e.g family-owned businesses, bolt-on facilities, … that PE cannot so there’s definitely more downside protection there. Sure it will depend on the fund’s mandate but I think this is a product of the market and the opportunities out there (not necessarily the firm)
Do some basic analysis on what happens to different parts of the capital structure under a less good environment. It’s pretty simple.
PE buys a business for 16x, finances with 8x debt + 8x equity. EBITDA increase 1.5x over 5 years. PE sells for 24x entry ebitda, pays back 8x debt, keeps 16x equity = 2x MOIC. Run that same math if ebitda doesn’t grow. Run that same math if ebitda goes down 50%.
PE is long turn 9-16. PC is long turns 0-8. So to answer your questions PC can do well while PE does less good.
One could even argue that PC maturing is one of the things making PE returns less good, as the more readily available debt capital is bidding up assets.
PE MF
While the function of the job at that associate level is somewhat similar, the career path is largely different.
The questions you should be asking yourself is do you prefer the PE career path or the credit career path. PE probably provides more long term optionality, and if you can actually make it up the ranks is way more lucrative. That said, its much harder to get promoted. The credit route would be materially less pay throughout the career, while having a much better lifestyle (still great pay of course). With credit you're more likely than PE of getting pegged into that career path, whereas PE opens more corporate jobs as others have mentioned.
Had this same debate back in 2017. I took a flyer after IB on an underwriting / originations split role at a MM PC shop ($2bn AUM when joined, now $9bn). Direct promote through from associate, senior associate, now VP. It's a good gig if you can find the right seat. Better hours, nicer people, good mix of sponsor-backed and proprietary founder-owned financings, no chasing a deal for 8 months just to find out some strategic swooped in and paid 17x, etc. Also in a non-NY/SF/LA market, so lifestyle is great. You're seeing the same diligence and having the same discussions as the eventual buyer of an asset. I looked at most of the PE VPs and Principals working past midnight in their 30s and didn't find that appealing. Joey J said the same.
If you fancy yourself as a value investor, off-the-run PC shops may suit your interest. If you like growth-y stuff and attending board meetings, PE may be a better route.
Does this PC shop offer more esoteric products? Spec-fin, ARR lending, asset-back loans on hairy stuff, mezz?
PC comp is largely in-line with other middle-market buyside seats. Maybe 10% lower. Those fin-meme comp surveys supported that, although who knows how accurate those are.
At some point, you have to pick something you think you'll like and roll with it. Who cares if you close off FP&A / "strategic finance" as an exit opp if that wasn't interesting in the first place?
Could you DM me? I would love to learn more about your career in PC, how your responsibilities have evolved so far, and how they will continue to evolve. Would really appreciate any time you can spare. Thank you!
I think you need to consider the difference in investing style at both. One will focus on something completely different than the other (ie. Credit focuses on downside protection while PE focuses on business growth very generally speaking). Both funds are amazing offers and of course the MF PE fund is more prestigious but don’t scoff at a 10Bn fund either. That obviously shouldn’t play a role in your decision but just know that.
Would Private Credit be an exit opp for DCM?
Would be hard to transition directly from DCM->PC. You likely will have to do a stint in LevFin before you make the transition.
Would be hard to transition directly from DCM->PC. You likely will have to do a stint in LevFin before you make the transition.
One aspect of this thread that I will note is the inaccuracy of private credit exit opportunities. If you are young enough and at the right shop, you have exits to everything a PE associate would have with the exception of perhaps a L/S equity fund. Have had coworkers in private credit exit to corporate development, solid middle market private equity shops, special situations, credit hedge funds, and strategy.
At the end of the day, go with the better fit.
This ^
I get tired of having to explain to everyone that PE isn't some end all be all of higher finance if you want to eventually exit. PC will give you similar exit opps, excluding equity HFs.
This is great to hear, considering PC and don't want to feel closed off
If the PC actually does PE level diligence you can do whatever a PE associate can do after. Some PC shops have terrible underwriting processes, don’t read docs and you won’t learn a lot. You need see if your PMs are focused Capital deployment (GC/Antares/Orcc) or truly generating alpha. I left a credit role to do Growth Equity/VC and had distressed HF, strat fin, corp dev offers. I didn’t want LBO PE even though HHs pushed that on me.
Offering a third view - you may want to take neither offer (I would take the PE offer, you can always goto PC). There are a few firms that do both PC/PE with the same investment team. As an associate at my old firm (MF credit), I’ve done control equity, lbo debt, growth equity, venture / growth debt, rescue financing, distress for control/influence. They had pretty expensive cost of capital so didn’t play in any auction processes where are there more than 3 other parties or have a completely different capital solution. Comp sucked and got worked but I was able to whatever I wanted to do after.
your former firm sounds like Bain Capital Credit or Sixth Street lol
BCC comp is market for MF PC/distressed…
Hey I know this comment is a year old, but I'm interesting in learning a bit more about PC if you have any time to chat.
Mind saying the firm or a range of firms you were at in credit? Assume it was an alpha generator as you phrase it
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