If aim is to work in private credit: is fundamental v structured better?
hey monkeys,
I’m an undergrad with previous ibd experience in M&A/restructuring and I want to eventually work in private credit. I have two have opportunities before me as a buyside analyst:
Public fundamental credit role versus a Structured credit role; the fundamental credit invests in the debt side of publicly listed companies while the structured role deals with securitization.
The fundamental side seems similar to private without the transaction/deals aspect. The structured role does meet with dealers and they negotiate transactions, mainly towards CLOs, ABS and SRT (significant risk transfers).
What do you guys thinks- What has the best exit opps? Is structured cool or niche? Is the only growth from public fundamental credit like a hedge fund or perhaps public equity?
Hey there, future credit whiz!
Both roles you're considering have their own unique advantages and can provide valuable experience for a career in private credit.
The public fundamental credit role will give you a solid grounding in credit analysis and the dynamics of the debt markets. You'll get to understand the ins and outs of different companies, their creditworthiness, and how their bonds are priced and traded. This could be a great foundation for a future role in private credit, where you'll be doing similar analysis but on private firms.
On the other hand, the structured credit role will expose you to the world of securitization, CLOs, ABS, and SRTs. This could be particularly useful if you're interested in the more complex, structured side of private credit. You'll also get to negotiate transactions and interact with dealers, which could be valuable experience for deal-making in private credit.
In terms of exit opportunities, both roles could potentially lead to a variety of outcomes. From the fundamental side, you could indeed move into a hedge fund or public equity role, or transition into private credit. From the structured side, you could move into a more specialized structured credit role, or leverage your experience to move into private credit or other areas of finance.
Ultimately, the best choice depends on your personal interests and career goals. If you're more interested in company analysis and traditional credit work, the fundamental role might be a better fit. If you're intrigued by the complexity and deal-making aspects of structured credit, that role might be more up your alley.
Remember, there's no one "right" path to private credit - it's all about gaining relevant experience and skills, and finding the role that you find most engaging and rewarding. Good luck with your decision!
Sources: What are the different types of Credit?, Restructuring --> Direct Lending / Private Credit
I've done both and started in structured finance my answer is - it depends on the kind of private credit or alternatives. Leveraged finance always is a high correlation to senior secured, junior, mezz etc. However, lots of shops are moving into the asset based lending, which would include such instruments as warehouse lines, revolvers, unitranche, typical trenching. This, plus generally needing to understand a different type of credit risk and recovery analysis, is 100% structured finance. Even CLOs generally go by this framework vs individual credits (unless you work at a clo shop). SF preps you for heavy legal, too. Private credit is a lot of legal interpretation
My mentor told me if you can do pre-crisis structured finance waterfalls, everything else is cake.
DM’d
PM'ing
what did you / your mentor mean by that last line?
The financial engineering so complex, if you can understand that, the rest is cake to understand. Just as an example of how complex it can be, we would find issues in the modeling of use of minthly waterfall proceeds in widely used software.... buy up the tranche, then contact the software company to challenge their modeling and boom, +20 points.
Legal skill still needs to be mastered for distress or workout roles in private credit, but generally this niche helps build a strong foundation. But, switching isn't easy
The fundamentals are fundamental. When you do your associate credit recruitment cycle they are going to hand you a CIM, not a legal document. I would say go fundamental if your goal is traditional direct lending.
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