Traditional players trading in distressed debt are facing competition from all comers seeking to move in on their turf. That's good news for anyone looking who wants to work in the sector.
To date, distressed debt has been a niche area in the investment world. However, private equity firms including Blackstone, Texas Pacific Group, Alchemy Partners, and Fortress have recently launched distressed-debt hedge funds. Oak Tree Capital Management has put a new distressed debt team in place, and recruiters say many are still hiring.
"There are firms that need to have professionals in their team now, and so we are seeing a large number of special hires even at this time of year because new teams are launching and setting up," says Charles Crichton-Stuart, distressed-debt and hedge fund consultant at the London-based recruitment firm Morgan Hunt.
Amjin Rajan, chief executive of the financial consulting and research firm Create, told Reuters that big fund management firms are more likely to get in on distressed debt by acquiring boutiques, rather than start their own operations.
But as opportunities open up, the war for talent is set to be fierce. "A lot of hedge funds are also launching credit opportunity funds, and all the banks are gearing up their distressed-debt desks, from analyst to MD," says Simon Stevenson, director of recruitment firm Stevenson James. "Banks are having to up their game in terms of remuneration to keep hold of their staff. So the arena is certainly very active."
The arena is also set to be lucrative. Distressed-debt hedge funds returned an average of about 7.3 percent in the first half of 2006, beating average hedge fund industry returns, according to Credit Suisse Tremont.
The sector is also quite generous in compensation, too. One recruiter said pay can range from $350,000 to $2.5million. "Someone who has done the two-year analyst program at a major investment bank, and then gained two years investment banking buyside experience, would get salaries at a considerable - a significant - premium above other sectors."