As banks cut jobs in the front office and long-established hedge funds close their doors, one area of hiring remains: direct lending. Banks are hiring. So are funds. But their interest is shifting to very specific types of people.
Direct lending or private debt refers to loans made outside of the traditional banking system. Lenders in the private debt market are typically traditional fund managers, or insurers, or hedge funds, or the fund management arms of investment banks. Recipients of the loans are typically small to mid-market companies, although the U.S. market can also encompass real estate loans.
Direct lending is more mature in the U.S., where Bank of America says the business grew from about $300bn in 2010 to about $700bn in 2018. Growth may now be slowing globally - in its recent third quarter update on the business, Preqin noted that new direct lending funds raised in Q3 2019 were at their lowest level since the first quarter of 2018. 'The general consensus is that we are in the late stage of the market cycle, meaning fund managers in private debt are bracing themselves for further uncertainty,' Preqin said.
If this is the message in the Americas, it hasn't filtered through to Europe. Earlier this year, Greg Olafson and Nishi Somaiya of Goldman Sachs’ securities division, made a podcast on the potential for private capital markets to grow on the Continent. 70% of lending in Europe is still made through the traditional banking system, said Olafson. And since the financial crisis, traditional banks have been "troubled," creating the potential for a new kind of loan product for the mid-market.
Banks are certainly getting in on the act. In the past month, Credit Suisse shunted former head of investment banking and capital markets Jim Amine into a new job as head of a $7bn NYC-based “Private Credit Opportunities” unit within its asset management arm - something for which Amine will presumably soon be hiring. And Daniel Simkowitz, head of Morgan Stanley's investment management unit said Morgan Stanley is "attacking" the private credit space "pretty aggressively" and has been moving bankers into the unit internally in a quest to become a, "core player."
It's funds, though, that have provided many of the recent employment opportunities. In 2018, investment professional headcount in the European direct lending market grew nearly 10% to 522 people according to headhunting firm Paragon Search Partners. Notable hirers included funds like Blackrock, BlueBay and Apollo Global.
Funds have continued expanding this year. U.S. fund Golub Capital opened an office in London in September 2019 and is thought to be hiring. Cordet Capital Partners, CVC Credit Partners and Hermes Investment Management have also been recruiting in London.
In their latest analysis of the private credit hiring market, however, Paragon's search executives note that while demand for juniors in the market is continuing apace, demand for more senior and mid-ranking staff appears to be slowing.
The chart below, taken from Deloitte's Alternative Lender Dealtracker for the third quarter and based upon figures from Paragon, highlights the shift. In the first half of 2019, private credit recruitment in Europe was disproportionately focused on juniors, while senior and mid-market staff were seemingly recruited on a one-in one-out basis. By comparison, recruitment last year - while lower, was more broadly distributed across the experience range.
Hiring in the European private credit market, by seniority
Source: Deloitte Alternative Lender Deal Tracker
If you're a banker looking to get a job in private credit, Paragon's data suggests that, in Europe at least, now is still the time. At a senior level, Paragon says 80% of this years hires have banking backgrounds, while at the junior level the two biggest groups come from banking (47%) and straight out of university (26%). The sweetspot for recruitment, however, is junior women. - Paragon says women recruited into direct lending funds increased by 50% between 2017 and 2019 amidst a "concerted effort to improve gender diversity."
Not all junior bankers are certain that a move into direct lending is a good idea though. "I'm working in a credit product group in an investment bank and am considering a switch into a direct lender, but am worried that the private credit market is super-saturated and will start laying people off in the next two years," says one analyst in London.
Andrew Perry, co-managing director at Paragon Search Partners, says the really fast growth in the sector is slowing as the space matures. "It's reached saturation," he says. "There are not many more players that are still growing. At this stage, most are either in it or not. The big scaling process where we saw mass inflows of people into the space is probably over."
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