Sector snapshot: Distressed debt
What's happening, who's hiring, and how much are they paying in the world of distressed debt?
What's the temperature?
Warming up fast: after years of hanging about hoping for a waft of debt decomposition, distressed debt types (AKA vulture funds) are finally having their patience rewarded, thanks to investors' sudden aversion to anything that smells vaguely like sub-prime mortgages.
According to Financial News, distressed debt and restructuring funds are in the process of trying to raise more than US$30bn with which to snaffle up the unwanted financial carrion.
Who's hiring?
Hedge funds - banks already have teams in place.
"With a few exceptions, most banks already have established distressed teams," says John Burr, partner at Principal Search. "We expect to see growth of distressed funds within hedge funds."
There's a degree of caginess about which hedge funds in particular might be on the lookout for staff. But it may be worth looking at the likes of Gordon Brothers, a US fund which hired two senior bankers from Barclays Capital to set up its London office earlier this year. Funds known to be in the process of raising capital may also be accumulating headcount. Try the likes of Oaktree Capital, Blackstone, Thames River, Goldman Sachs - or Eos Partners, another US fund, which, according to Financial News, is about to launch a new fund focused on European acquisition targets.
Who are they hiring?
The real demand at this point, according to Burr, is for distressed debt 'sourcers' who tend to have either a trading or sales background. "The distressed debt market is so illiquid that you really need to know where to source the paper from in the first place" he says. "The relationships the sourcers/traders have with those institutions holding the debt is key to a viable business, as is the ability to properly analyse the underlying credit."
Although investing in distressed debt can be more akin to asset management than trading, many of those tasked with sniffing out the putrefaction are apparently ex-traders: "They will have familiarised themselves with the credits as they move from investment grade, to high yield, to distressed," says Burr.
Leveraged financiers with good contact books are also liable to find themselves in demand as sourcers, according to other recruiters operating in the area.
Lawyers familiar with the legal issues involved in the rehabilitation process are equally popular. Earlier this year, Goldman Sachs hired a restructuring lawyer to its London distressed debt team, for example. "Funds hire a lot of lawyers from specialist law firms like Linklaters, White and Case, and Clifford Chance," says Lee Thacker at search firm Heidrick & Struggles.
There can also be roles for distressed debt analysts, who according to Thacker typically come from institutional credit managers.
Finding a role in a distressed debt fund is unlikely to be easy. Last year, Cerberus Capital, a major US fund, is understood to have interviewed 2,500 people for just 110 vacancies.
How much are they paying?
Quite a bit. Thacker says pay has historically been on a par with leveraged financiers, with people at vice-president level earning US$700k to US$800k. Burr says the most senior distressed debt professionals are earning US$5m to US$10m.
There are signs that distressed debt professionals are getting greater leverage to demand higher pay. Mark McGoldrick, former head of Goldman Sachs' special opportunities (read distressed debt) group left the bank this year - allegedly after Goldman didn't pay him enough. McGoldrick's group was then responsible for US$900m of profit at the firm in the last quarter after Goldman sold its lucrative investment in Horizon Wind Energy.
What future?
If everyone piles into distressed debt and things don't end up quite as badly as they might, jobs may prove short lived. Right now, most securities are still stressed (they look they'll default) rather than distressed (they've already defaulted). Give it a few more months however, and most predictions are that the historically low default rate will start creeping upwards.
