why do ppl go into debt finance… and work as debt analysts…??? just curious… when being equity analyst should be much more fun.// any words of movement?
I did municipal debt analysis and now do commercial real estate debt analysis. It’s fundamentally the same thing as equity analysis. They are equally uninteresting jobs with higly transferrable skills.
Because companies raise debt too. Not sure how “equities” is much more fun as well lol…
pecking order: internal funds, debt, equities cheaper that way i guess
if i were to interview you and ask you… why are you interested in working in the debt sector, rather than equities… what would you say?
kkent Wrote: ------------------------------------------------------- > I did municipal debt analysis and now do > commercial real estate debt analysis. It’s > fundamentally the same thing as equity analysis. > They are equally uninteresting jobs with higly > transferrable skills. kkent, i don’t say this too often but this is pretty funny. thanks for keeping it real.
hellomello Wrote: ------------------------------------------------------- > why do ppl go into debt finance… and work as debt > analysts…??? just curious… when being > equity analyst should be much more fun.// any > words of movement? Did you miss the last few years? Debt markets drove the equity markets. The average equity analyst didn’t know why GE was about to get runover in the fall of 2008, but if you tracked where GECC CDS traded, it was obvious. Nothing like finding out the CP market is evaporating and you have (if I remember correctly) about $100bn in ST debt. It can be more fun to be a debt analyst because you can cover several securities in one capital structure plus CDS. To each their own, but being an equity analyst seems boring to me.
> The average equity analyst didn’t know why GE was about to get runover in the fall of 2008 Not sure that was the issue. I believe eq analysts often know what’s going on, but “the market can stay irrational longer than you can remain liquid.” My personal feeling is that equity markets are driven by too many (underinformed) retail investors; debt markets seem to react more rationally.
DarienHacker Wrote: ------------------------------------------------------- > > The average equity analyst didn’t know why GE > was about to get runover in the fall of 2008 > > Not sure that was the issue. I believe eq > analysts often know what’s going on, but “the > market can stay irrational longer than you can > remain liquid.” My personal feeling is that > equity markets are driven by too many > (underinformed) retail investors; debt markets > seem to react more rationally. yea but are there enough unsophisticated retail to move the market?
DarienHacker Wrote: ------------------------------------------------------- > > The average equity analyst didn’t know why GE > was about to get runover in the fall of 2008 > > Not sure that was the issue. I believe eq > analysts often know what’s going on, but “the > market can stay irrational longer than you can > remain liquid.” My personal feeling is that > equity markets are driven by too many > (underinformed) retail investors; debt markets > seem to react more rationally. Debt Markets are rational? Have you read any distressed books and how many times some dude took a shot and bought like NYC bonds or some company going broke and everyone was undervaluing like crazy. Also you think that retail investors and not huge money managers drive the equity markets? Unless if by retail you mean owning a mutual fund in a firm like fidelity.
What are the pay ranges for these positions? I always like the sound of them (kkent comment noted…), but not sure if it means taking a wage cut.
Couldn’t you as easily ask, why be an equity analyst when you could be a pro footballer? The fact is, it’s not always easy to land your dream job. Although in saying that I don’t think it’s necessarily true that everyone, or even most people, working in credit analysis wishes they were in ER even though I would have to say my strong preference would be for the latter (and pro footballer >>> ahead of either!).
The debt market is actually much larger than the equity market. IIRC, the corporate debt market is about 4x the size of the equity market. In “normal” times it is not as volatile a market, so you can manage fair sums of money with (somewhat) less stress. There are fewer unpredictable things in fixed income, although there is still enough uncertainty to keep you on your toes. Because the number of things that are unknown are fewer, you can also do more mathematical calculations on fixed income analytics before the noise outweighs the signal. If you are doing fixed income portfolio management, fixed income portfolios can be a lot more complex to manage than equity portfolios. This is because IBM has only one stock (or occasionally two or three, like BRK.A and BRK.B), and these stocks are more or less the same. IBM may have hundreds of different bond issues, issued at different times, different coupons, different put and call call provisions, etc… Moreover, bonds mature, whereas most stocks don’t. Therefore if you are holding a bond portfolio that is supposed to have a duration of 5 years, and you are supposed to maintain that portfolio (say you’re managing a mid-duration ETF), you’re going to have to sell some bonds as they get closer to maturity and buy new, longer-duration bonds instead, just to maintain your portfolio characteristics. Big pools of investment funds need to have large fixed income allocations (insurance companies, pension funds, many banks) because they are trying to match assets and liabilities. So there are a lot of fixed income portfolio managers out there. In institution-land, probably more than equity PMs.
bchadwick Wrote: ------------------------------------------------------- > The debt market is actually much larger than the > equity market. IIRC, the corporate debt market is > about 4x the size of the equity market. > > In “normal” times it is not as volatile a market, > so you can manage fair sums of money with > (somewhat) less stress. There are fewer > unpredictable things in fixed income, although > there is still enough uncertainty to keep you on > your toes. Because the number of things that are > unknown are fewer, you can also do more > mathematical calculations on fixed income > analytics before the noise outweighs the signal. > > If you are doing fixed income portfolio > management, fixed income portfolios can be a lot > more complex to manage than equity portfolios. > This is because IBM has only one stock (or > occasionally two or three, like BRK.A and BRK.B), > and these stocks are more or less the same. IBM > may have hundreds of different bond issues, issued > at different times, different coupons, different > put and call call provisions, etc… > > Moreover, bonds mature, whereas most stocks don’t. > Therefore if you are holding a bond portfolio > that is supposed to have a duration of 5 years, > and you are supposed to maintain that portfolio > (say you’re managing a mid-duration ETF), you’re > going to have to sell some bonds as they get > closer to maturity and buy new, longer-duration > bonds instead, just to maintain your portfolio > characteristics. > > Big pools of investment funds need to have large > fixed income allocations (insurance companies, > pension funds, many banks) because they are trying > to match assets and liabilities. So there are a > lot of fixed income portfolio managers out there. > In institution-land, probably more than equity > PMs. right on. I just like to add that generally, there is more upside to equity than there is to bonds. With bonds the analysis business wise is a bit simpler. If you’re willing to buy the equity of a company, then you should be willing to buy the bond too in most cases, but the reverse is not true. So when you’re doing equity analysis, you’re implicitely looking at the bond too. just my thoughts.
FrankArabia Wrote: ------------------------------------------------------- > > right on. > > I just like to add that generally, there is more > upside to equity than there is to bonds. > > With bonds the analysis business wise is a bit > simpler. If you’re willing to buy the equity of a > company, then you should be willing to buy the > bond too in most cases, but the reverse is not > true. So when you’re doing equity analysis, you’re > implicitely looking at the bond too. > > just my thoughts. you don’t buy bonds for the upside or return/income (unless you do distressed, HY or low rated sov) you buy bonds to preserve capital, the return comes on the side.
FrankArabia Wrote: ------------------------------------------------------- > bchadwick Wrote: > -------------------------------------------------- > ----- > > The debt market is actually much larger than > the > > equity market. IIRC, the corporate debt market > is > > about 4x the size of the equity market. > > > > In “normal” times it is not as volatile a > market, > > so you can manage fair sums of money with > > (somewhat) less stress. There are fewer > > unpredictable things in fixed income, although > > there is still enough uncertainty to keep you > on > > your toes. Because the number of things that > are > > unknown are fewer, you can also do more > > mathematical calculations on fixed income > > analytics before the noise outweighs the > signal. > > > > If you are doing fixed income portfolio > > management, fixed income portfolios can be a > lot > > more complex to manage than equity portfolios. > > This is because IBM has only one stock (or > > occasionally two or three, like BRK.A and > BRK.B), > > and these stocks are more or less the same. > IBM > > may have hundreds of different bond issues, > issued > > at different times, different coupons, > different > > put and call call provisions, etc… > > > > Moreover, bonds mature, whereas most stocks > don’t. > > Therefore if you are holding a bond portfolio > > that is supposed to have a duration of 5 years, > > and you are supposed to maintain that portfolio > > (say you’re managing a mid-duration ETF), > you’re > > going to have to sell some bonds as they get > > closer to maturity and buy new, longer-duration > > bonds instead, just to maintain your portfolio > > characteristics. > > > > Big pools of investment funds need to have > large > > fixed income allocations (insurance companies, > > pension funds, many banks) because they are > trying > > to match assets and liabilities. So there are > a > > lot of fixed income portfolio managers out > there. > > In institution-land, probably more than equity > > PMs. > > right on. > > I just like to add that generally, there is more > upside to equity than there is to bonds. > > With bonds the analysis business wise is a bit > simpler. If you’re willing to buy the equity of a > company, then you should be willing to buy the > bond too in most cases, but the reverse is not > true. So when you’re doing equity analysis, you’re > implicitely looking at the bond too. > > just my thoughts. To a degree, but on a relative value basis, you could like where parts of the capital strcuture trade relative to the individual benchmarks as opposed to on a absolute basis. For instance, if Company A is initiates a stock buyback program, that news is positive for the equity and negative for the credit. Presumably, if the company is in that position, the credit metrics are reasonable so you continue to be supportive of the whole capital structure (although that’s not always the case). So if Company A’s entire capital strcuture traded the same as company B’s, you may want to be in Company A’s equity and Company B’s bonds all things being equal. There are more subtle situations to this as well. The credit agreements and bond indentures may play a part in what bonds you want to be in vs. what equity. But I agree with your general point, if you are willing to be in the riskiest part of the capital structure, presumably, you’d be willing to own, at the right price, more senior parts of the capital structure.
I’ve often wondered what an investment process would be like where when you invest in a company, you buy the equity and debt in rough proportion to the actual capital structure, so that you make a mini version of the company. I find myself wondering if that is a more efficient risk-adjusted return than just buying the equity. But I’ve been too lazy to go ahead and do the analysis. The challenge seems to be that it might be a lot more difficult to reproduce the company debt correctly, since it is more complex than just going out and buying a bond from the company… it’s got to be representative of all the outstanding bonds, not just one issue.
FrankArabia Wrote: ------------------------------------------------------- > With bonds the analysis business wise is a bit > simpler. If you’re willing to buy the equity of a > company, then you should be willing to buy the > bond too in most cases, but the reverse is not > true. So when you’re doing equity analysis, you’re > implicitely looking at the bond too. > This isn’t even close to accurate (with the exception of the last comment). The underlying analysis is the same (understanding the company and its drivers), but valuations can vary across the capital structure. Just because a stock is cheap/rich doesn’t mean its debt will be the same. If you were correct many hedge funds would have to cross “capital structure arbitrage” out of their investment strategies.
FIAnalyst Wrote: ------------------------------------------------------- > FrankArabia Wrote: > -------------------------------------------------- > ----- > > > With bonds the analysis business wise is a bit > > simpler. If you’re willing to buy the equity of > a > > company, then you should be willing to buy the > > bond too in most cases, but the reverse is not > > true. So when you’re doing equity analysis, > you’re > > implicitely looking at the bond too. > > > > > This isn’t even close to accurate (with the > exception of the last comment). > > The underlying analysis is the same (understanding > the company and its drivers), but valuations can > vary across the capital structure. Just because a > stock is cheap/rich doesn’t mean its debt will be > the same. > > If you were correct many hedge funds would have to > cross “capital structure arbitrage” out of their > investment strategies. “this isn’t even close to accurate”. then the guy goes on to say “the underlying analysis is the same” which is basically my point. talk that capital structure arbitrage mess elsewhere. capital structure arbitrage isn’t what you normally call “debt investing”.
My point was valuations are not the same across the capital structure. Thinking a stock is a good buy and thinking a bond is are two independent decisions. Your posts make it clear you don’t work in either debt or equity investing.