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What are private credit jobs? A brief guide from KKR

For anyone who hasn't noticed, the big new class of buy-side jobs in the past few years has been private credit. In the 10 years to October 2021, private credit grew tenfold according to SP Global. In the next five years, Preqin predicts the market with grow by another $2.3 trillion, but as the private credit industry matures more and more of the assets under management are going to the big funds run by the likes of Carlyle, Ares Management, Oaktree and Blackstone.

One of those big private credit funds is run by KKR, which has $12.5bn set aside for credit investing strategies and says that credit is a good investment at this stage in the cycle, even if there do happen to be some headwinds in the form of higher rates, mark-to-market losses and potential investor withdrawals. 

For anyone who wants to know what jobs in private credit entail exactly, KKR has a helpful definition in a note out this week. 

The three types of private credit job 

KKR says there are three types of private credit: direct lending, mezzanine/junior debt and asset backed finance.

What are direct lending jobs? 

If you work in direct lending, you'll making loans directly to companies without going through, say, an investment bank's debt capital markets division, which might otherwise help the company issue a high yield bond. The loans usually mature over five or six years and the rates are given as a spread above a reference rate.

KKR says losses on direct lending products have been minimal and were only 1% between 2004 and 2022. However, selecting the company to lend to is critical and this is a key function in the direct lending world.

What are mezzanine/junior debt funds?

Mezzanine and junior debt funds have traditionally offered fixed rate loans that are popular with smaller companies. Often used in leveraged buyouts, mezzanine loans are one of the first forms of debt to be paid off if the company goes bankrupt and are often convertible into a company's equity. 

KKR says mezzanine debt has the advantage of being longer in duration and that if investors are willing to lock-in money into mezzanine funds for longer periods of time than in direct lending, they could achieve higher returns. Oaktree, which runs various mezzanine debt funds, has this handy primer on how it works. 

If you work for a mezzanine fund you'll be doing much the same as at a direct lending fund in terms of finding investment opportunities, analyzing their viability and executing deals, but you will also need an understanding of mezzanine structures.

Asset Based Finance (ABF) jobs 

As shown by Apollo's acquisition of Credit Suisse's securitized products group, direct lending funds are also increasingly interested in asset-based finance. Apollo predicts that an increasing proportion of securitized products deals and financing will come through funds rather than banks in future. 

Asset based finance is all about using assets and the stream of income those assets will generate in the future to create a security that can be sold. The assets might be anything from real estate to aircraft or railcars, says KKR. The advantage is that their value usually rises with inflation - which is desirable in the current environment. 

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Photo by Waldemar Brandt on Unsplash

 

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AUTHORSarah Butcher Global Editor
  • SP
    SPONG8291
    9 March 2023

    How does one prepare or break into private credit jobs ? Coming from a Real Estate finance background. Any notable firms/places to apply to ? Thanks

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