Q&A: Currently at a Credit Hedge Fund
I have been on this site for a while and thought I'd start an "ask me anything" thread here given the number of DMs/DM requests I've received with credit fund related questions. By way of background, I graduated from a non-target (at the time), worked on the sell side (Leveraged Finance) for a few years, and am currently at a well-known Credit Hedge Fund (one that pops up frequently in this forum). I will probably not comment on performance and compensation.
Hit me with some questions. Here to help.
(Also a lot of my replies are from my phone so there's probably a number of typos here and there)
What was your career progression like? Any tips for starters like me who is still confused with the career path?
My career progression was a few years in Leveraged Finance Investment Banking post-grad before jumping over. If you are still confused about career paths, it might not be a bad idea to start off in a modeling-intensive LF/FSG IB team.
What type of hedge fund are you in? Distressed, liquid, MM?
Distressed, but rapidly growing a Private Credit arm
Advice for prepping for private credit / credit HF on cycle?
It depends on your background - we typical look for folks that 1) started off on the credit buyside 2) have the standard 2 years IB + 2 years PE or 3) very strong Lev Fin / RX IB experience. The one thing that will pop up in the interviews is familairty with Credit Agreements / Docs and be able to creatively structure a new debt financing.
Do credit HFs hire people from S&T credit desks? If so, do they hire the salespeople or the traders? Do the sellside traders just switch to buyside trading or do are they also part of ideation/investment analysis? Similarly, do the credit salespeople just go on to IR or are they part of ideation as well? Thanks for doing this.
Advice for getting better going through CAs/understanding implications for lenders?
I am not sure what type of background you have, but when I was in LF IB, when it was quiet, I would read Credit Agreements fully (especially those from very aggressive sponsors). Also it was a little easier for me because I was negotiating docs with the sponsor and lenders in my previous seat.
What is the interview process like and how would you recommend one with LevFin / credit experience prep?
The interview process can get technical. I was in the process for 2-3 months and it was draining. Regular way fit interviews, very technical interviews, a very long case study, and some social setting meetings (dinners/drinks). I think one mistake a lot of folks interviewing from the sell side is they are always very positive on the credits (standard banker optimism), but we like to hear stuff like what credit didn't you like and how did you structure it to make it work. Or a deal you pretty much turned down. Or even pitch a short. Theres just way too many "long" pitches out there (its not wrong, but when we start picking holes on why we dont like the credit, that's when things start to trend downhill in terms of the conversation). There is also a saying that people in the syndicated market gets "spoon fed" with information (which is not wrong) so pitching a differentiated idea that isn't part of the norm is advantageous.
Also to add a story, a few years back (way back) I was interviewing at a credit fund and they asked me to talk about a recent deal I worked on. I spoke about healthcare name and I said what I really liked about it, pricing was sufficient blah blah. They asked me about the docs and I said it was market clearing, then proceeded to probe me on what I didn't like about it (I made up some stuff on the fly); they continued to probe...i continued to wing my responses. If you look at that loan today, its trading at like $1...(those who follow the LL mkt will know who it is). I bring this story up because everyone we see typically have this pitch or similar. Credit is more focused on downside protection and in distressed, you need to have differentiated views. I went with the pack in my Healthcare pitch, along with all the other CLOs, and its become a write off for alotta folks.
Can a corporate banking associate jump straight to a credit HF? If they have experience with bond issuances alongside dcm/LF and know CAs well? Not much modeling experience though except some debt schedules and running through mining models
It would be pretty difficult - the products are different - Corp Banking deals primarily with RCF/TLAs (aka bank relationship products) while LF does the standard LevLoan/Private Credit/High Yield products. Modeling will be very crucial too and is a main component during the case.
How would credit research be looked upon? Should I try to jump into Lev Fin/RX post-MBA?
Credit Research, assuming HY/LL on the sell-side, would be helpful and I've seen them make the move to multi-manager hedge funds, but if you want to do distressed, I think it would make sense to do LevFin/RX post-MBA. Credit Research is probably more helpful for performing credit strategies.
I know you said you don't want to talk about the comp, but would you be open to giving some general industry comp range for VP level roles at credit hedge funds with more than 5bn in Aum? Base plus bonus. pls DM if you don't want to share here. Thanks!
Happy to just put it here for the sake of transparency. Its all over the place because some Credit HFs just have the typical Portfolio Manager / Senior Analyst / Analyst titles while others have more banking titles (more so in Private Credit) so you'll have MDs, Principal/VP, Associate, and Analyst. In my shop, we don't hire at the analyst level in the Private Credit arm. In Private Credit, you are talking about $500-$800K+ at that Principal/VP level with a little bit of carry. Standalone private credit firms not affiliated with a HF is probably lower because Credit HF yield bogeys are higher than the Blue Owls of the world. Bases are usually a little low so call it $200-$250k at that level, but you make it up with the bonus.
Great, thank you. How does this comp range compare to the ones at credit HFs (not private credit) for senior analyst level with experience of 5 to 8 years?
Thank you for doing this. How would you look at hiring someone who went College --> FT to a Private/Opportunistic fund like Victory Park / Varde / Beach Point? I'm a first year analyst at a similar shop, and I'm on the Financials/Specialty finance team. We do a lot of lending and loan purchases from consumer facing specialty lenders, aircraft leasing, and similar SpecFin deals. Wondering how my exit options could look like some day in the future. Thank you again!
Specialty finance is a different animal, but if you find a HF that has a flexible mandate, it could be a nice niche. I think Comvest does a lot of that. I think if you want a broad experience, you should try to move to a traditional credit role as your aforementioned deal types are pretty niche. Our fund is flexible, but we haven't done any of those deals because there is a lot of opportunities out there in traditional credit; e.g. industrial/consumer names that are decent but got impacted by the covid pandemic / supply chain issues resulting in crazy nwc swings and need liquidity asap. Victory Park and Varde are a little sleepy. I don't see Beach Point in a lot of our deals, but they do pop up from time to time in traditional liquid performing credit (bonds mostly)
Similar question to above. I just graduated from non-target and in July will be starting as an analyst at a BB in the Equity-Linked / Converts group, housed under ECM. I'm interested in HFs in the future, do you have any reads on exit options from a group such as this? Would your fund be a possible fit or would I have to lateral into LevFin or PE first?
Helpful, thank you. Great to see people giving back and doing this, kudos to you for trying to help people.
Just started as a FT analyst in a MF liquid credit group (mostly leveraged loan investing for CLOs with some HY and a bit of stressed / distressed work given current markets right now). Would this at least get me a look at a firm like yours? Can’t imagine that it would put me at a disadvantage to LevFin backgrounds but open to hear why that might be the case
That will be helpful indeed - not sure if you saw my earlier post on this thread but the backgrounds we usually look for are ppl that 1) started off on the credit buyside 2) have the standard 2 years IB + 2 years PE or 3) very strong Lev Fin / RX IB experience. At the senior level, it will be a little more difficult
It's also pretty firm-dependent, I actually interviewed for a distressed/special sits fund back in the day and they made it clear they will never hire someone from a CLO.
All of the MF liquid/performing credit groups have a distressed pocket -- why not just try to move internally in the future to get you to the end goal?
.
I echo what ripatory said. Not super easy to transition. But that’s interesting. I figured that MF seat would kind of nullify the CLO issue as obviously it’s not your run-of-the mill CLO manager but will keep that in mind. Figured the investment research aspect would make it better than LevFin
Thanks for doing this. Have you seen anyone make the jump from distressed credit research (or maybe HY credit research) to where you work?? or is it almost exclusively from IB/PE?
Honestly, at my shop, I don't think there's anyone from distressed research, but I have seen some with that background at other shops. Sell-side distressed, honestly, everyone pitches the same ideas which makes it a crowded trade whereas we self-source these opportunities. I've seen more HY and Distressed credit research folks move to multi-manager shops vs traditional distressed shops.
Would it be possible to break into a credit hedge fund as a trader at a top BB on the CDX desk? Or do you mostly look for ib experience? Thanks!
I think it'll be hard to join the investment team from credit trading. Your best bet would be to join the trading team but those folks typically don't leave and if there is an opening, there's a number of "junior traders" and "trading assistants" that would probably be next in line. I think if you are consistently profitable, it may be worth looking at the multi-manager HFs instead. Could be lucrative and you are not holding investments for 3-5 years (vs distressed/private credit)
Are you guys hiring? any advice on getting into space. Feel these seats / opportunites not widely published and recruiting less defined compared to PE/PC
We are not hiring at the moment but yes these roles are never really broadly advertised. It’s almost always headhunters and internal referrals
What is your view / thoughts on SVP and DK please? In particular relating to london. Thanks
Unfortunately, I cannot comment on their reputation in London as I focus on US deals, but both are solid shops. We view SVP as a direct competitor (not afraid of loan-to-own situations/restructurings) but I hear that place is a sweatshop and I know of associates/senior associates who leave after 1-2 years. My personal view is they are more "distressed PE" eg. start snapping up debt at distressed levels with the intention of converting that to equity/control of the assets. Davidson Kempner is a solid "fly under the radar" credit HF that does everything in credit (performing, stressed, distressed etc) and they usually write big check sizes. They are around the Byju situation right now.
If you have offers at either place, I think you can't go wrong with either one, but I'd probably skew towards SVP as they do some very complicated transactions.
I think most people I know who work at distressed / credit hedge funds would rather go to DK over SVP fwiw.
Work / life balance and job security is much better at DK with a bit more variation. If you want to not have a life most people would choose Silverpoint over SVP (maybe Attestor in UK) and if you want to go into hairy MM distressed PE, most probably prefer KPS over SVP. This is mostly US opinion though.
Do you ever get involved in trade/lit claims in distressed/BK scenarios?
The team has, but I personally haven't given I joined the team less than a year ago and I am investing out of a new vehicle (so Ill def have more color in 6 months). Our fund has a very strong RX guy so when the time comes, they will be super involved in these things.
Opinions on the CFA? Would you recommend taking it? (non-target background, currently in underwriting focused LevFin group)
Honestly, the CFA won’t be too helpful. From my experience, it’s more relevant for mutual fund seats versus Hedge Funds.
What credit strategies do MM hedge funds (e.g. citadel, millennium, p72, baly, etc) typically dabble in (excluding derivatives) from a fundamental perspective? Is it traditionally L/S, distressed, Long-Only. Would distressed debt fit into a special situations credit strategy?
How would MM HFs compare to Apollo and Ares?
Coming from a HY/LL credit research background with a preference for L/S credit though open to distressed/SS but I guess you need a RX/LF background for that.
The MM hedge funds are typically L/S - I've dealt with them in my former life on the sell side and they would get a primary allocation and in a few weeks, they will be out of it entirely. Running a long-only strategy is hard if you are measured by quarterly performance and stressed/distressed/special sits are typically more illiquid and they would need time for the trade to play out, which would be tough for most MM funds.
Its a different setup, MMs are usually more relative value investors while Apollo/Ares is more fundamental. I think if you want a strong foundation in credit, you should start at a place like Apollo / Ares especially to sharpen your skills with credit agreements/docs etc
I've seen HY/LL credit research move to MM HFs and also performing credit teams at Apollo / Ares, but stressed/SS, you would probably need an RX/LF background.
Thanks for that, great insight!
Could I move from an Apollo/Ares to a MM HF and vice versa?
Can you shine some light on pure play credit hedge funds like Goldentree, DK etc?
currently an SA in RX at an EB. How competitive is it to land a seat like yours after one's analyst years? Is it similar to the on-cycle process for PE? I'm obviously a little too scared to ask about buy-side placement during my internship now, but based on a LinkedIn search very few people go to a credit HF (only a few to places like OHA and Diameter).
It depends on the fund - my shop typically recuits similar to PE - e.g. find the candidates during their first year, lock them in, and get them to start after their second year. We dont take that many people every year so its very competitive as most folks that come in dont really leave the firm so the seats remain very limited.
Is distressed debt basically special situations in the credit context?
It is a blurry line between "special sits" and "distressed" and I am sure everyone will have a different view on this. In distressed, the business is typically suffering and needs capital/liquidity from someone like us asap - whether it is to pay down an upcoming maturity or fund working capital etc etc. Special sits could be a scenario where it's a very small business that is semi unprofitable (but not distressed) and wants to raise capital for lets say M&A. They cannot finance it in the regular financing markets, so they go to us for financing that is highly structured e.g. cash/pik/warrants to result in a decent risk/reward profile. But it's interchangeable per se cuz if you are a special sits investor, you would have had experience in distressed given the above example if the business just remains unprofitable. And if you are a distressed investor, you would have been a special sits investor to invest in highly complex scenarios and the trade just didn't work out and you ended up taking the keys.
Thanks for doing this!
Just at the start of my career.
What are the main credit investing strategies (e.g. Distressed, L/S, Long-Only clipping coupons etc, idk what else there may be) that credit funds and mm hedge funds deal with.
Would really appreciate it, if you could just shine a bit of light on each; if one is more suited to public / liquid markets or if one is more private markets / illiquid and whether a credit research background is sufficient or RX is needed.
Sure, see below:
Liquid Credit: these are your usual performing credit strategies that invest in syndicated Leveraged Loans & High Yield bonds. Most of the investor types are regular way asset managers, long-only funds, CLOs, mutual funds etc. Your typical coupon here starts at S+450 (so this is the lowest-yielding one). Typical backgrounds are traditional IB and Credit Research.
Illiquid/Private Credit: this covers a broad spectrum of private credit strategies so the coupon range is big. Traditional uni LBO start at S+625, all cash pay. When you get to the stressed/opportunistic credit strategies, you can see things go to like S+1000 cash pay or with a mix of PIK/Warrants to juice returns. A lot of these strategies are intended to solve balance sheet problems. The typical background is traditional IB, RX, and PE.
Distressed/Special Sits: I spoke about this on this thread. The yield is probably closer to the high teens to getting the keys of the business where you have to figure out how to extract value. The typical background is LF/RX/PE and sometimes maybe legal backgrounds.
MM funds typically invest via L/S credit strategies. On the short side, you typically can only do that with bonds. This is the fastest money - e.g. you see a name trading at 90, you start to buy it, then it becomes 93 cuz markets are better, and you exit and clip the 3 points. The problem is that a lot of axes are like 2x2 or 3x3 so it's hard to pick up volume in a lot of names.
Hope this is helpful
First of all, thanks getting back with your answer. Helps a credit newbie like me a lot.
Not that it matter to me as I do prefer L/S strategy over the other since its more markets focused, but would a MM HF L/S credit strategy comp ever exceed a distressed / special sits credit strategy?
Would distressed debt / special sits credit strategy ever involve public but illiquid bonds (e.g. distressed public bond trading at 30 cents, but illiquid for obvious reasons)? Or is the strategy always private market focused?
Could you also just elaborate a bit more on the 2x2 and 3x3 (or do you mean the volume of the bond / issue is not as large).
Where would you tell a credit/HY trader (my current seat, ignore anon intern) to start looking if one were interested in working in a HF environment? Per you response above, MM L/S credit seems to be most feasible given I don't have Rx or advisory experience but have all fixed income and trading experience. Can I DM you?
Do you think someone from a MF PE Analyst/Associate seat would be at a disadvantage to people with a credit background? Does the type of fund make much of a difference?
Also any thoughts on how easy it is to get a role at one of the larger scaled HF seats (Elliot, DK, Silver Point) immediately out of top RX IB shops? Is the process typically as extended and of similar difficulty to everyone else?
Finally, any thoughts on where some of the medium sized multi-asset credit managers might end up?
Thanks a lot
My fund is considered one of the larger-scaled HFs so can chime in based on my observations:
In this thread, I did mention the backgrounds we typically look for: 1) started off on the credit buyside 2) have the standard 2 years IB + 2 years PE or 3) very strong Lev Fin / RX IB experience. PE will be helpful because LBO debt makes up a good percentage of the things we look at (especially in the stressed/opportunistic/distressed space). LBO capital structures were way too levered pre 2022 and most of the stuff we've seen recently are sponsor-backed.
We recruit within the same timeline as PE. While it is extended, we understand that you are in process with other funds so we don't really drag it too long - expect a lot of technicals and a case. Note that the number of seats isn't that much every year so it can get competitive. Most folks that join us don't really leave the fund.
Leveraged credit is a multi-trillion-dollar asset class that can be very bespoke and customizable. Unlike equity, there will always be a set maturity/refinancing needed with billions and billions of debt refinanced out every year. And a large number of them will run into balance sheet issues especially where SOFR is at now. So medium-sized asset managers will always be around and there is enough to eat. While I am at a large-scale HF, we continuously turn down opportunities just because of staffing issues/prioritization of other deals/opportunities so those end up going to other large scaled players/medium-sized funds.
Very helpful thank you.
Do you mind listing some of the other credit funds that recruit on the same timeline as PE? I figured a lot of credit shops are ad-hoc and upon signing you leave banking early.
Does this mean you finish interviews in only a few days like PE funds do?
Hi, thanks for the thread.
Do you ever come across ex lawyers/law students in the space.
My current trajectory is Rx/M&A law at a top 10 firm with a view to joining a distressed fund in the long-run. I assume the steps necessary would be LevFin/RX IB and then the buyside but interested to hear if you ever come across a straight law --> HF jump
I’ve seen similar backgrounds pop up from time to time but typically at smaller HFs. The reality is that you’ll be missing a big component, which is the financial modeling aspect and due diligence front. While a legal background can be helpful, we usually just hire K&E, Davis Polk etc to represent us as lender counsel. I have seen a lot of big law-> RX IB -> distressed and that would be a really great background.
Additionally the interview process can be painful and can get very technical with a long case study. If you want to do the path from big law -> distressed, you should def supplement with financial modeling practice on the side
Pretty much every scaled distressed fund I can think of has at least one or two+ former lawyers or went to law school on their investment teams. Silverpoint (3 I can think of), Davidson Kempner, Redwood (3 I can think of), King Street, SVP, Centerbridge, Goldentree, Oaktree across groups, Oak Hill Advisors, Diameter, Elliott. I guess I can’t think of someone at Brigade.
What was your experience with technical case study/modeling exams? Anything interesting to share there?
It was pretty standard - give you a CIM of a distressed idea and put together a full IC memo and present for a two hours (a few model assumptions, key risk and mitigants, thesis, industry background etc). The hard part isn't really putting the case together, its the presentation as you have to present/get drilled for like two hours and there was a big audience.
How are your hours.
12+ hour days and weekends. Not as bad as banking, but honestly, you sit there working for the 12 hours straight (whereas in banking, you have a lot of time in between to shoot the shi*t and grab coffee with your bullpen).
Really interested in going to Hedge fund from Sales and trading (incoming S&T SA at BB). Any advice??
You should try to join as a desk analyst (performing/distressed/special sits research) under the S&T umbrella.
Great thread so far! What’s thoughts on the best SS and credit arms out there? Currently interning at a well respected Credit shop that has a long history and tend to use that to lateral into FT. How would you rank all the special situations players like Bain, Ares, Oak Hill etc etc? Which one put you in the best position to get to one of those funds listed that you work for
The three you mentioned are all pretty solid, would probably rank Ares first. Honestly, if you get a seat at one of the top SS funds, I dont think there is a need to join a fund like the one I am at now :) though we have hired a couple of folks that used to work at the below:
These are some of the larger ones (in no particular order), with a little more structure in terms of hiring: Apollo (Hybrid Value/Distressed), Ares (Special Ops), Blackstone (Tac Ops/Distressed), Brookfield (Special Ops), Sixth Street, Oaktree (SSG), HPS, GS, Blackrock (Tennanbaum legacy), Beach Point, PIMCO (Special Sits), Charlesbank (I know - I didn't really know them at first, but they have some sharp folks)
I am sure I am missing a couple...
The only need would be more money hahah:) Thanks for this man - super helpful! Do you think with the current market environment and potential looming recession yourself and these funds will be busy for the next year or so?
Would you leave a megafund credit fund for credit hedge fund?
Hate to keep asking questions but always like to pick the brains of guys on the front line with experience! Which industries would you consider most to be "highly discretionary"? Also, are you guys getting in on both sides of the playing field both equity and debt as of recently? Or more on the debt side?
Restaurant/travel/leisure, auto/auto aftermarket, household durables, apparel are good examples. Golf cart manufacturers?
We typically play the debt side initially (cash and PIK) and maybe structure it with equity like instruments to juice the returns. We typically don’t worry too much about equity because when you do the TEV build of a distressed name, the equity value is usually worth $0/negative.
Thoughts on spots like Vardë, Castlelake, Atalaya, Carlyle Credit Opportunities, etc.? Any insight as to broader reputation at firms like these
Carlyle has a solid team in credit opps and I am seeing Varde pop up more and more. Atalaya, I think, focuses on much smaller businesses and more spec fin these days - I dont see them at all in my day-to-day. Castlelake, I dont overlap with.
Any recommendation for someone from traditional IB background interviewing with a distressed HF?
Think I gave a bunch of advice here on the interviewing prep/recommendation. But know your technicals, credit thought process, and credit agreements. Also be ready to pitch ideas and why a particular credit is misunderstood.
Thanks and any suggestions on distressed investment in the context of a bankruptcy process? Read the Moyer book a few times but wonder if there's a practical case study / model someone could share
Just wondering from perhaps peers in HF, can you lateral to HF through S&T. I am on trading desk at one of largest banks in NA. Thanks for help.
What do you trade? Tough at my shop but I've seen some moves here and there, but more so a desk analyst on the sell side to a HF.
This is extremely helpful. Thanks a lot
What are your thoughts on aggressive LME trades? Is your firm one of the ones actively pursuing?
We are pursuing regular way distressed trades such as BSL loans that have an upcoming maturity. We are pretty full right now on commodity exposure.
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