Updated view on Private Credit/DL?
I know there are some threads on this but they are a bit older and not with all the information that I’m looking for. I will be starting full-time next year at a “EB” (PWP/LAZ/MOE) and I’m looking at my options for exit opps. I know that I have a variety of options but I would rather not do PE and maintain the same poor WLB compared to IB. I have considered private credit/DL but the information seems very flakey, especially between firms. The locations I’m interested in are NYC/Chicago/Boston and ideally I would want to work less hours but at least get paid similar to IB. I would love any insight on this.
Contemplated a move but found the shops/groups that pay the best (Ares, Oaktree, MF credit arms) work similar hours to IB jobs
Also not sure if there were comp increases as of late so the delta versus IB might've become larger
What about the groups that are a step or two below? Like Maranon, Pennant Park, etc. Are the hours still similar? Does comp fall off even more?
Direct Lending used to be a relatively "chill" gig where you'd work 50-60 hours a week and still get decent pay (maybe only a slight discount to BB associate pay back then, don't know about now, post the recent banking pay bumps).
But the direct lending industry (basically middle market loans) got flooded with capital with any PE fund worth a salt opening a private credit arm because well.. why not, and it's now approaching the same story - too much capital chasing too little deals. From what I see in my peers who took this path, if you're in a top direct lending shop (Ares, Owl Rock, BX, Apollo etc) you will be working banking hours mainly because they assess almost every opportunity that comes across, even if it's complete crap, due to the pressure of deploying capital. A bit of this is mitigated by the larger direct lenders creeping more towards the larger institutional loan space (basically the traditional bulge bracket leveraged finance space), but the viability of that is a bit uncertain because the yields to remain competitive in the traditional LevFin loan area is just too low to maintain the yields required to properly function (and satisfy the investors) of their BDCs, even post using leverage. We'll see how this develops going forward, but like the above poster mentioned, be prepared to work a lot - and it can get disheartening when the deals you assess are in the $5-20mm EBITDA area, when you were used assessing the $100mm+ EBITDA stuff back in traditional LevFin.
I think the one advantage though is that most deals are sponsor-backed in this area, so the due diligence is usually nicely packaged and provided to prospective lenders on a silver platter, which makes it easier to assess for credit committee purposes (you can ask your PE peers how much of a hassle it is when they have to handhold company management / financials when they get bought out for the first time). So yeah, grass is not always greener, just my 2 cents
Thank you for that great explanation. It seems like PC/DL was the go-to exit opp for good pay with much better hours but not much anymore. What would you say is the “go-to” now?
I don't think PC/DL was ever the go-to (think it had always been PE, and still remains so) but it did attract a unique segment of LevFin bankers who wanted to try a more entrepreuneurial role in a (what was then) a relatively new and massively growing industry
This is probably not what you want to hear, but the "go-to" gig is something only yourself can answer as each person has different interests. I know WSO makes it out like PE is the holy grail and if you don't make it to PE, you are deemed "incompetent" but I've seen so many cases where peers move to PE only to realize they absolutely hate it, and end up doing something else. PE at the end of the day is about doing deals, and so if you hate banking then I promise you will hate PE as well, but of course, young college kids do not understand this and so they later find this out themselves, although no tears shed for them - banking / PE experience sets you up for any role within finance afterwards so the world's still their oyster.
At a high level, I think personally areas that aren't as saturated have the largest opportunity to really build a career and create a niche for oneself- so products like PE secondaries, specialty lending (asset-backed, large scale pay-day loans etc) - but obviously this isnt for everyone. The great thing about banking is that is exposes you to a variety of products so that once you finish your 2-year stint, you have a relatively good idea of what different products are out there, or at least surface level knowledge on what they consist of. From then you can decide which product / industry you find most interesting and take it from there.
For what it’s worth, In PC you close a lot of deals with different structures, sponsors, industries, etc, which prevents things from getting stale. I didn’t pursue PE because I was told you spend a lot of time on only closing a few deals a year so if you are stuck on some boring insurance deal for 6 months, it’s like pulling teeth. Comp is haircut to PE, but hours are generally much better. Not for everyone and not as sexy, but can def raise a family and have somewhat of a life.
Junior debt with equity shops might be more up your ally versus senior debt shops like Antares.
Also, MD comp in NYC is around $1M per year……
Are you in PC right now ?
Is it realistic to transition to DL from coverage associate at BB? How much would the haircut be from 2nd or 3rd year street associate pay?
10x Leveraged - should we be distinguishing deal flow of a typical BDC vs. a Direct Lender that wants “control” / to anchor the loan financing in terms of % commitment, and is more selective in - often competing in more “complex” deals with less competition? I’m not gonna deep dive right now, but I’ll see what others think to further the dialogue
I think it would be super helpful if you could give an overview of the various types of strategies that are encapsulated in “Private Credit” and how they all differ in their mandates and deal structures + day to day origination to closing (high level). I’ve listed some that you can hopefully touch upon & elaborate
- Mezz/Pref/PIK/2L focused funds (HPS, BX, Park Square, Albacore)
Not sure what else I’m missing but feel free to add more types of private credit funds to elaborate on. Thank you!!
If you want chill (ish) hours, infra funds is the way to go, although there as well too much capital chasing too few deals
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Currently a first year associate at a DL shop in a tier 2 city. Will echo what others have said regarding market saturation, there’s tons of capital to deploy and deals are almost always won on structure / terms given how much interest there is (people aren’t really saying no to any credit these days).
However I find the job very qualitative vs quantitative, and the move from banking to DL wasn’t as straightforward as I was expecting. Definitely a bit more of a learning curve than I imagine going to PE would be, but I think this is a good thing. I’m rarely in the weeds of a model, and much more focused on understanding the credit and evaluating risks / mitigants. I’ve been able to close almost 10 investments just in this calendar year alone, and have taken a look at probably 30 names at this point, so lots of opportunities to see lots of different companies. Hours are very good IMO, usually 9am-10-11pm M-W, thurs is 9-8 or 9 usually, Fri is pretty much always 9-5 if that, minimal weekend work unless cranking through a memo. Probably averages 65 a week. Comp is minimum $200k all in first year
Thank you for that detailed response. What kind of firm and city are you at? I don’t want you to doxx yourself but I’m curious if it’s at more of a recognizable name in a city like Chicago.
I'd second this comment. Currently a 1st year analyst at a larger fund in Chicago. My hours are slightly better since we don't dip into the 2nd lien or Mezz though, so I'm typically working 8-7 Mon-Thurs, and usually usually out by 4/5 on Fridays. I have had to work some late nights, because we'll get sent stuff late into the evening.
Job is incredibly qualitative though, the models tend to be pretty simple. The risk and mitigants section tend to be the most important, and where most of the presentation and discussion tend to be centered around.
How does comp look like for AS1 at your firm? How big is your Fund?
Bump. Any other thoughts?
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