Transitioning from High-Yield/Performing Credit to Distressed HF

Questions for you opportunistic credit HF folks - How possible would it be for one to transition from a L/S HY ( including some stressed, CDS and LevLoans)/Performing Credit role to a distressed role? Assuming the former role is straight from undergrad, what extra steps would one need to take in order to be a competitive candidate for a public distressed seat at a top fund? What kind of difficulties or disadvantages might one face without having the IBD background and how would you compare to a LevFin/Rx Analyst?

I'm assuming more effort would have to be put towards modeling early on, but I'm not aware how of how drastic the difference in investment analysis is when comparing HY vs distressed credits and what disadvantages I might face. All opinions and additional info is appreciated from those sitting in either seat!

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Comments (9)

Mar 3, 2019


Mar 4, 2019

bump bump bump

Mar 3, 2019


Most Helpful
Mar 5, 2019

I don't think its really a matter of modeling skills, so much so I'd say kinda an after thought from my perspective.

Overall, I think its an uphill battle for a lot of reasons. The main difference would be that while similar, the two jobs are very different (research process, building positions, driving process, post reorg, technical aspects etc). It's hard to answer specifically because there are a lot of nuances involved - what level are you, what level is open role, etc. For a more experience hire role, you'll be competing against people with distressed backgrounds so all things being equal they will win every time. If its more junior, maybe you're competing against a rx banker kid - who will have process know how over you but lacking direct investing experience. This situation has greater possibilities to win in my view. That said this stuff is all out of your control though so kinda is what it is.

In order to better prepare yourself you can 1) try to get involved with as many of the distressed situations in your current seat, 2) spent more time on credit docs for your current role, 2b) get up to speed on topical issues involving distressed situations that involved credit docs, 3) practice some distressed case studies, 4) get up to speed on the distressed process.

My gut is a successful transition will be more networking driven.

    • 5
Mar 3, 2019

Thanks for this response, super helpful. I figured being in a buy-side seat would help my case, obviously analyzing and investing in HY/stressed credits in comparison to a SS seat, but will obviously have a few more roadblocks to get around. Also would be targeting more junior roles since this is only 2-ish yrs post undergrad. If this process is more networking driven, I'm assuming its definitely a very possible move. Definitely will apply your advice in those last 4 points.

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Mar 5, 2019

Given you're more jr. I think the odds are a lot better. Craft a good story on why transition - should be pretty easy (I've worked on these stressed scenarios, blah blah blah). Pick up on lingo of distressed vs. HY. Less RV talk and spread talk, more total return, creation multiple (use interest to pay down multiple), priming, etc. Networking will help but at these levels so will a HH. If I was interviewing and it was between a jr level HY Analyst and an RX banker but that HY kid could talk credit really well, I'd be inclined to pick the HY kid because he/she has actually invested. I'd guess a lot will come down to preference but that's outside your control.

    • 3
Mar 7, 2019

How about bschool given the networking emphasis here?

Mar 6, 2019

Great response above. I will add that the process knowledge that a restructuring banker has is not rocket science, and can be learned independently. Tons of resources are available to help you get up to speed on this (the commonly cited books, Distressed Debt Investing blog, and Reorg Research if your firm has a subscription).

So, self study plus a well-constructed pitch plus some networking can get you there. As said above, the earlier you make the transition the better. I also know of a case where a mid-level (5-6 years of experience) person was able to move into a startup distressed fund. It's doable.

    • 3
Mar 3, 2019