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.

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (16)

  • Associate 2 in IB - Cov
Sep 11, 2021 - 5:43pm

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

  • Intern in IB-M&A
Sep 11, 2021 - 5:45pm

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?

Most Helpful
Sep 11, 2021 - 6:42pm

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

Array

  • 8
  • Intern in IB-M&A
Sep 11, 2021 - 6:45pm

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?

Sep 11, 2021 - 6:56pm

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. 

Array

  • 6
Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
  • Analyst 2 in IB - Cov
Sep 11, 2021 - 7:08pm

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.

  • Analyst 1 in S&T - Equities
Sep 11, 2021 - 10:01pm

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? 

Sep 11, 2021 - 10:29pm

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

  • Research Analyst in HF - Other
Sep 12, 2021 - 5:10am

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

  • BDCs (ARCC, TSLX etc etc)
  • Direct Lending Funds (HPS SLF?)
  • Special Situations Funds
  - Capital Solutions / creative financing (Sixth Street?)<p> </p>
  - Flexible capital base / growth credit / liquidity/rescue deals<p> </p>

- Mezz/Pref/PIK/2L focused funds (HPS, BX, Park Square, Albacore)

  • Funds that syndicate out giant deals post commitment (Antares?)

Not sure what else I'm missing but feel free to add more types of private credit funds to elaborate on. Thank you!!

  • Associate 1 in PE - Other
Sep 13, 2021 - 10:47am

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

  • Intern in IB-M&A
Sep 13, 2021 - 10:53am

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.

  • Intern in IB-M&A
Sep 14, 2021 - 9:31pm

Voluptatum eum ipsam quia corporis repudiandae. Ex doloribus rerum sapiente sapiente. Sit provident aliquid quis et esse.

Nisi enim quo dolorem officiis doloremque quisquam qui repellat. Maiores culpa repellendus sequi voluptatum iste. Dolores eius repellat assumenda beatae dolores voluptatem quis. Quo voluptatem corporis itaque. Fuga earum nesciunt dolores asperiores ratione praesentium consequatur.

Start Discussion

Total Avg Compensation

September 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (38) $367
  • Associates (218) $232
  • 2nd Year Analyst (130) $153
  • 3rd+ Year Analyst (30) $147
  • Intern/Summer Associate (102) $144
  • 1st Year Analyst (478) $135
  • Intern/Summer Analyst (375) $82