Private Equity vs. Private Credit

Hi Everyone,

Long-time lurker over here currently at a credit hedge fund focusing on special situations and opportunistic credit. Haven't seen all that much about private credit vs. private equity. Been trying to assess whether I'd like to stay on the credit side or move to the equity side. I like the creative side and uniqueness of the structuring around credit, but I have more of an entrepreneurial mindset and feel like I'd like the PE side of things. I'd love to hear people's take on private credit vs. private equity.

What hypes you up about credit/equity?

What's the comparative work life balance?

What's the comparative pay?

Which has the best future outlook?

Any other thoughts etc.

 

Comments (20)

 
  • Associate 1 in PE - Other
Oct 13, 2020 - 5:50pm

Happy to chime in and provide my thoughts on private credit as I've been in the space for a few years, but if you don't mind me asking why are you looking to switch out of a credit HF role? Seems as though opportunistic credit will be booming for the next 12-24 months and this is the best time to beat in a opportunistic credit seat

 
  • Associate 1 in PE - Other
Oct 18, 2020 - 11:00am

What hypes you up about credit/equity?

- Enjoy being on the credit side because you get to look at and close a lot more transactions - while credit is now much more commoditized than what it used to be, still far fewer private credit firms that can Agent deals relative to PE funds out there. You dig deep into new opps, but not to the extent a PE Sponsor would given you're sitting ahead of them in the cap stack. My firm invests cross capital structure too so get to see deals across senior 1L, 2L, uni, mezz, equity, etc.

What's the comparative work life balance?

- Currently working about ~70 hours a week, but normally I'd say anywhere between 55-90 - pretty wide depending on deal flow and where your respective deals

What's the comparative pay?

- About $175k-$250k for a first year associate depending on the size of your shop and whether they recruit former bankers vs nontraditional backgrounds

Which has the best future outlook?

- I'm inherently biased here, but I would think private credit given LP's are recognizing that rather than getting a 15%-20% IRR in an average buyout fund, they could be getting 10-12% in a levered credit fund and even more in funds that do slightly hairier deals that command a higher yield. Plus with private credit LPs are getting consistent cash pay on a quarterly basis while in PE your $ are locked up for quite some time 

Any other thoughts etc.

- Overall big fan of private credit and think it will explode over the next 5-10 years, but at the end of the day most private credit firms that do Sponsor backed deals will be at the mercy of PE deal flow as both go hand in hand

 
Most Helpful
  • Analyst 2 in IB - Gen
Oct 14, 2020 - 3:59pm

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. 

 
Nov 5, 2020 - 10:32pm

At the end of the day, in private credit you are underwriting a downside, structuring to mitigate disaster in said downside, relying on management and ownership to provide you information you require or request, and monitoring your coverage from a collateral or enterprise value perspective. For LPs, you get consistent income but at income tax rates.

In private equity, you are underwriting an upside, structuring to maximize returns for future fundraising, focusing more time than you'd think wondering if you have the right management team, hiring new leadership if need be, structuring incentive plans and compensation packages, running parallel models to your management teams and questioning every number they give you. From an LP perspective, you see lumpier distributions but get capital gains treatment on taxes.

Which sounds more like what you want to do? You can make plenty of money in either asset class.

-- sm
  • 3
 
Nov 6, 2020 - 11:32am

I wouldn't focus on the "sexiness" of any particular industry. The only person you should worry about impressing is yourself. Your friends and family members don't go to work every day and do your job for you. So if you are chasing a career path for adulation and glory, you may be doing it at your own expense. A sexy career comes from a job that (a) you genuinely enjoy, (b) constantly challenges you, and (c) provides you with a sense of accomplishment and value. As an investor, you will likely get a heap of B, so you want to make sure A and C are covered. That's were the decision between thinking like an owner or a lender comes into play. Hope this is helpful.

-- sm
  • 2
Start Discussion

Popular Content See all

What would you name your MM Bank?
+33OFFby 1st Year Analyst in Investment Banking - Mergers and Acquisitions">Analyst 1 in IB-M&A
What are your thoughts on living in SF?
+23IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
I farted and my coworker smelled it
+20OFFby 1st Year Analyst in Investment Banking - Industry/Coverage">Analyst 1 in IB - Ind

Total Avg Compensation

November 2020 Private Equity

  • Principal (6) $693
  • Director/MD (14) $640
  • Vice President (56) $360
  • 3rd+ Year Associate (60) $272
  • 2nd Year Associate (112) $246
  • 1st Year Associate (246) $224
  • 3rd+ Year Analyst (23) $162
  • 2nd Year Analyst (54) $140
  • 1st Year Analyst (157) $119
  • Intern/Summer Associate (17) $66
  • Intern/Summer Analyst (172) $60

Leaderboard See all

1
LonLonMilk's picture
LonLonMilk
98.4
2
Jamoldo's picture
Jamoldo
98.3
3
Secyh62's picture
Secyh62
98.3
4
redever's picture
redever
97.9
5
CompBanker's picture
CompBanker
97.9
6
bolo up's picture
bolo up
97.5
7
NuckFuts's picture
NuckFuts
97.5
8
Addinator's picture
Addinator
97.5
9
Edifice's picture
Edifice
97.5
10
frgna's picture
frgna
97.5