Speaker 1Welcome to Other People's Money. I'm Max Wheatley, and today I'm joined by high-yield Harry. Harry, welcome to the show. Thanks for having me, Max. You are a leading voice in the Fintwit community and a prolific chronicler of all things related to the buy side, both on Twitter and through your venture, BuySideHub. I want to start because between AI supposedly coming for the junior analyst job, the maturation and maybe we could say saturation of private equity, and the growing concerns about the state of private credit, things don't really seem great on the buy side. And so I'd love to hear from you whether you think that's true, and is this what you're seeing from the data that you collect from thousands of buy side professionals through the BuySideHub?
Speaker 2Yeah, thanks again for having me, Max. So I would say it's very bifurcated. I don't want to say tale of two cities, but there's so many different things going on at the moment that allow for a lot of folks to make money on the buy side. But it's kind of the year of the investment banker. And part of that's because of SpaceX and some of this other IPO activity that we've seen or are expecting. But also the environment is kind of leaned more towards bankers just in terms of stability, just because a lot of PE and then private credit as well, to some extent, like those folks have had to wait on exiting positions. They've had to do continuation vehicles. Fundraising has been a bit more challenging. It's just not the same environment it was from the 2010s, but also '21, '22, what have you. So one of the things that we've noticed is private credit compensation has kind of like peaked a little bit. Obviously, as you progress throughout your career, you're earning higher compensation levels. But there's that worry there on the private credit side, which I think is like a 12 to 18 month lag from all these PE folks. And then on the PE side, it's really interesting. Because. We just saw an article from FT and there's, private equity folks who are expecting their carry check to have hit by now, who are, who are taking some sort of like non-recourse loan off of future earnings that they expect from carried interest just to continue and subsidize, I guess, their lifestyle, given it's kind of expensive to pay through private school with some of your kids, among all the other things that we've seen over the last couple of years, which have been really, really, really challenging for private equity folks to be able to pay through private school. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. I would say the LPs probably feel the same way. Yeah. Yeah. I imagine they're, they're, they're not too happy. Hopefully they're getting their economics. But. You know, we, we've seen a lot of LPs voice concerns, both about private equity and credit.
Speaker 1So it sounds to me like you're saying it's the year of the sell side, not the year of the buy side.
Speaker 2Yeah. Yeah. That's, that's a really good way to say it. Cause we don't even have a open AI and entropic quite yet. And with banking, there's just a lot of M and a activity going on in a lot of stability, even with AI. It seems like a lot of bankers feel pretty good about this year and next year.
Speaker 1We'll go through all three of these things. Where do you want to start? You want to start with private equity? Private credit, this AI coming for the junior analyst job. What do you think is the area where there is the biggest pockets of concern?
Speaker 2Yeah, that's a good question. I think first and foremost with private equity versus private credit, you see a lot of doomerism with private credit. And I think it's very fair because we've seen that even some of these well-established funds are seeing their redemption rates go up quarter over quarter. We're going to see that 5% rate hold this is structured to not go above. The 5% gate, but it is very real and very concerning that you're seeing consistent teens level redemption requests, because that shows there's a lot of people in the asset class who are one worried to maybe shouldn't have been there in the first place. That's a whole different discussion we can have to and then just general broader worries about the downside risk with the asset class, especially given the fact that. We know AI is going to play a massive role in disrupting software companies, business services, companies, tech enabled services, stuff that for many folks equals like 20 to 35% of their portfolio. And that really hasn't played out yet. Some of the private credit names that have run into issues haven't necessarily been those businesses quite yet. And some of that's just been coming from the fact that rates have been high for four years. This, you know, distress. Is the free cash flow ability multiples were higher. There's no real exit at the moment. So there's, there's more pressure, I think, from the equity side than credit, because I think a lot of people forget that the docs are tighter and private credit than they are in like the broadly syndicated loan market and equity obviously takes the first, the first hit in the default or, you know, any other sort of restructuring. Like, I think, I think private credit is actually more advantageous. I think private credit is actually more advantageous than, you know, any other sort of restructuring. I think private credit is actually more advantageous than, you know, any other sort of restructuring. I would generally agree with that.
Speaker 1It has surprised me the degree to which people have focused on private credit, given where it sits in the capital stack. You don't really hear about private equity. I mean, there are entire firms built around investing, buying these sort of old sluggish software companies at low multiples, levering them up. Maybe they do some sort of consolidation. You know, that's entire firms strategies, whereas private credit, you know, obviously is in a bit different state in the stack and maybe doesn't have as much, as much exposure in one particular fund.
Speaker 2I think that's a really good point. And I think the one thing I would add from my time in both private credit and public credit is the diligence process is a lot more thorough in private credit than public credit, just because of how it's structured. Like public credit has a dynamic where there's a hundred lenders in the capital structure. The timeline, for a deal to get done is seven to 10 days, but obviously these high yield roadshows same with IG, this is like one same day new issue today's business or like something that's done over a two to three day period. So it's a lot faster in the public credit markets while private credit has that illiquidity premium in knowing the fact that you're kind of holding onto this paper for quite some time. So you really need to get a lot more comfortable. A lot closer to the numbers to the people. And as a result, the diligence process is deeper, longer and more exhaustive.
Speaker 1So with these redemptions from private credit there are a number of forces that are at play. Some people have talked about the fact that the BDC is the publicly traded private credit vehicles are trading many of them at discounts to their nav. And so if you can get a redemption and then go into the BDC, there's a little bit of nav arb that you could play that might be the most generous sort of smart money reason why we're seeing this. We're seeing redemptions come up. But then the other side is that they really went after retail and retail perhaps didn't quite understand how the gating worked and what they were investing in. And so there's there's concerns about private credit, but then there's also just the FOMO, right? Like what's happening in the equity markets? What's happening with the A.I. trade? People want as much capital as they can to chase this trend between those three forces coming together. I mean, do you think any one of. Them is dominant?
Speaker 2I think the retail component is really important because that's not necessarily a flow that will happen three or five years from now. It's definitely part of the flow story over the past two to three years where retail is getting more involved in private credit. I think this is going to scar retail quite a bit where like, you know, for any professional who does this for a living, we kind of get the gist of private credit where it's OK, it's it's locked up capital. There is going to be a mid single digit default rate that comes with the territory, but you're getting a nice yield. And maybe this replaces some of the high yield allocation you historically got might be more attractive than some court bonds, what have you. Like, I think that's how a professional would look at it. Like retail might look at it differently when they realize, like, oh, I can't have my I can't get my money like that, you know, a wonderful life type of money. But I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story. I think that's a little bit of a different story.
Speaker 1I think that's a little bit of a different story. I think that's a little bit of a different story. Certainly the industry was penciling in quite a bit of growth growth from retail basically to infinity uh and so when you talk about the comp rolling over I mean how much of that is the slowdown right now and how much of it is projection out into the future that um you know this business isn't going to just be up and to the right forever
Speaker 2I still think like it's worthwhile saying that like comp is really constructive like there's there's been points where like the the baseline a couple years ago with private credit associate comp at top funds has been like 150 cash comp 150 bonus um if not more you know if not getting into 325 350 it topped New York shops I think that's started to edge a little higher too um and that's like a that's only like a 25k to 50k Delta from like the top private equity firms um so this like private credit's a career where if you're in it for seven years like you're you're making quite a bit of money quite fast like you know like somewhere in the frankly 500 to 700 range which in New York is no joke um and obviously there's a little bit of a you know you lose some of that and like there's a bit of a discount if you're not in New York but if you know if you're in Chicago LA elsewhere you're still getting compensated extremely well so you know even like a small little hit uh or like fundraising pressure um consequential is what the downside of like a bank can be I still think there's like some AUM stability with these PE and private credit funds but I think the problem comes with you know what if we hire 10 associates or 10 Associates instead of 12. um you know same with like okay we hired three instead of five Etc what if there's only two VP slots instead of three like I think that's where a lot of private equity and private credit folks might start running into issues where it's like oh wow you know my my fund can't raise we're not doing deals we're not exiting deals um we're not able to to fundraise we're just kind of like managing the fund and it's going downhill from here like I think there's a lot of those stories but happening behind the scenes and I think that's what kind of leads people to splinter off into different things um but but comp wise like yeah it's flattish on the credit side and a little bit on equity but people are still going through the progression to some extent um but it's not as high flying as like the variable compensation that I think some investment bankers are seeing relative to like some of the bad years that we had um four years ago with banking
Speaker 1interesting and so when you say you know people are still advancing through um but it sounds to me like there's kind of a ceiling right now that because the the capital markets have slowed down for private credit that there just isn't as much opportunity for people to move up and you know to get to that 500 700 range that you're talking about you do need to move up within the org um so what is the what is the career Mobility look like for people in private credit and private equity and how do you project that moving forward it really is a pyramid like
Speaker 2most things in life where there's a ton of analysts a ton of Associates I think you can really kind of like go through the motion um not almost everyone but like everyone can become an associate it's just a question of okay can I get to the senior associate level uh can I get to VP and the slots become harder to come by um you know as you keep going one of the things I've noticed is a lot of the private equity Associates will splinter off into private credit after their two to three year stint which is a little surprising um maybe they just want like a little bit better of a lifestyle where they're working 10 to 15 hours less per week like not as on call as private equity um or or maybe they're going off and going into like the lower middle market or a smaller middle market shop where they where they think there's more opportunity and where they're able to potentially get out in New York City as well so those those are a few things going on um I do think the industry is like a little top heavy where there's just a lot of um people gobbling like that won't necessarily change new fund formation like I think I I think it's kind of like capitalistic in nature where eventually the carry is just not really you know it's kind of hoarded by too few people that eventually creates Dynamics where it's like okay I'll go raise a new private equity fund or I'll splinter off or you know I'll go the small medium business route um you know like just acquiring my own business and owning all the economic space there like I think that dynamic is still going to exist I I do think that we're kind of heading towards a world where you just need like a little a little bit less of of head count um where you kind of have like eight Associates instead of 10 Dynamics like that I think people need to build out or they need to assume a world where AI is perfect you know as of right now AI is as bad as it will ever be it only advances it just a rapid rate that no human can can advance that and I think that's something that's like quite remarkable but also quite scary and frankly though today like what I was doing as an analyst like seven years ago has been absolutely reshaped by AI where AI can do 90 to 95 of it the memo building the diligence the finding sources the random Excel tasks um like all all the grunt work stuff that I would have to do by hand or or by Excel has just dramatically changed and I I think that's something that like really changes and advances the role of what an analyst associate Etc looks like in that that drives the fact that you really need to be more than just like a deal monkey and make sure you're understanding businesses doing sales managing processes coordinating with people like doing tangible things that um are tied to like the real world economy to actually advancing uh you know the operating profile of a business and building relationships doing sales Etc because I think I think in many ways like uh every job is sales and you know being able to do that is is something that will have some value uh you know in a AI Singularity world so it sounds to me like if you're at a bigger org it's
Speaker 1just going to be harder to get as many of those opportunities so do you think there's advantage for uh younger finance professionals to to actually spend time at smaller orgs because up until now it has been the the big guys are kind of eating everything and that's where you want to be um those jobs were better the the Advancement was better because they were the ones raising money they were the ones raising new funds and that's where the opportunity was do you think that has now flipped
Speaker 2yeah I think I think it's two-sided like when I think of big companies there's like big companies like Apollo who are always doing deals they have a lot of capital to deploy um there's a lot of money coming in the door there and I think that is obviously a place where you will learn a ton you'll do a lot you'll be quite smart Etc like I don't I don't think that's ever changing I think the the institutions that are a bit more in trouble is where you're kind of like a cog in the wheel and you're going through the motions you kind of have like more of an email job type job uh you're working a few hours like you know maybe maybe it's a big name but the fundraising isn't as good um your work is more like boilerplate asset management type of type of skills like I think I think that stuff is a little harder to like rationalize over a 10 to 20 year period I think what you want to do is be a little bit uh closer to kind of seeing how the pudding is made um and some of that comes from like the lower middle market the middle market what have you just situations where whether you're the private equity player or you're like a one-stop capital provider where you're at a private credit fund that does a little bit of Equity or maybe you're a private credit fund that's like a little more hands-on I think that's like the more compelling place to be because the the two career paths are really going to be oriented towards like the AI tech enabled stuff and then the real economy stuff and I think the real economy stuff is really important here where the skill set you want to learn and that you want to build towards are skills that tie you to like the real economy and in driving a business forward as opposed to like guessing oh this company is gonna gonna beat on earnings by like five million dollars or oh I read this GLG call or talk to this expert or blah blah blah like and didn't actually touch anything tangible to the business but I think I have this understanding like I think not to like go too far off topic but one of the problems with like software investing from finance professionals is that they're not actually technical um you know it comes from just like reading some Sims talking to some people stuff like that but they're they're not really in the weeds and don't really understand it so I think the fear is you don't want to be a professional who doesn't actually understand business like you want to be someone who has like transferable skills where you know if there is problems in private equity or um you know a lot of these different buy side firms that you can go out and like work for a business or buy a business and actually manage it and actually figure out how to grow beyond just like the things that don't exist anymore in terms of just buying like a smaller competitor and getting multiple arbitrage like that that's kind of the easy way out uh the firing people like you actually have to figure out how to grow a business and i think that's like the skill set that finance professionals should be indexing for like the
Speaker 1real economy stuff so in a prior cycle like were the roles because i've seen it with people in and i'm using private equity as the example but you know there were private equity professionals who their job was to go actually be in-house at one of the portfolio companies i mean was that job considered to be um the job that you wanted at the time and and is that maybe why people haven't done that they don't have those skills
Speaker 2yeah i mean i think the higher compensated job is being an investment professional working on the deals as opposed to being like the operating team member and like going into the portfolio company um i i think i think both of those roles can be attractive like i think in private equity you just want to make sure you're close to the deal you're close to the management teams you're driving value like a lot of those pe roles exist without having to become like an operator but i think the operator is a good place to be um because some of those folks go on to be cfo's and i think that's been quite lucrative for a lot of those people who are senior finance leaders or cfo's who join the private equity ride are compensated with some profit share um and have a good result upon the exit so that was i think that was good for the past cycle but given exits are slower you're just you're kind of relying on your cash compensation now understood
Speaker 1so you want to still be on the investment team but you don't want to be the person who it's like a barbell right like maybe you want to be the guy who's been on the factory floor a couple weeks a month talking with management um or if you're in the software side you want to be somebody who is using codex and clod code and and those sorts of tools and really understands it you said that people weren't technical but as coding starts to move more towards being ai generated i mean doesn't that give investment professionals perhaps an opportunity to up their
Speaker 2technical knowledge so there is something very interesting from from scott goodwin over diameter he basically said that they didn't hire analysts before but now they're able to just because there's so much knowledge at the tip of everyone's fingers that a lot of these students who are more inclined to take action and learn and you know in our like 99th percentile uh you know they're they're able to do that so i think that's a really good point and i think that's a really good point and they're able to hit the ground running and provide a lot on on the other side of the coin some of the more like senior credit analysts or investment professional folks are having a harder time adjusting to ai you know they're not they're not tech forward and i think that's something that can can really hurt you and kind of like hinder your advancement you know i think there's a constant joke that i post that other people post about like boomers or other people not being able to open a bank and they're not able to open a bank and they're not able to open a bank and they're PDF. Like I think some of that applies to like actually deploying agents and, you know, being AI centric across like the workforce. I think there's a lot of people who are a bit stubborn to change or, you know, might face displacement. So, you know, there, there is like definitely a new wave of people who will be AI forward, but it doesn't necessarily mean that everyone who's already in the industry is going to figure out how to like cloud code and, and, you know, have open cloud
Speaker 1and stuff running around. So what's an example of a task that you think you could do better, faster with AI, or that you can do now with AI that you couldn't do before that this, you know, boomer coded senior credit professional is not able to do that a younger person can.
Speaker 2I think we're, we're kind of beyond like the whole, the whole prompting thing. Element where it's like, Oh, how do I like develop very strong prompts, et cetera. It's more about, okay, what, what can my agents do? And I think, I don't know if we're quite there with finance in the way that we are with like tech where agents are running around and doing things. I think that's kind of where the puck is going. I think we'll, we'll get there quite quickly, but the big thing that comes to mind on my end is just the ability to develop memorandums and to do grunt work and Excel is just quite, quite rapid. I think, I think a lot of people don't understand the prompting element, which is why I brought it up because, you know, obviously that's kind of like one-on-one at this point for a lot of people, but, you know, some people might have a negative view about AI because they don't understand how to like, you know, get, get it to do something quite well after a few iterations. Like they might give up after just saying, Oh, blah, blah, blah, do this in three sentences. Like it needs a lot more direction than that. But realistically, like a lot of the heavy lifting on research, diligence, modeling, you know, developing memorandums is, is all, is all done. And I think that frees you up to like do some other things. We are seeing a bit of like an agentic movement with AI expert calls. So I think that's something that is going to continue to take place where a lot of your diligence processes are completed by AI and, you know, you're going to you're gathering information from third party experts, which is something I never would have thought would happen. So all that's flowing into like really turbocharging you to focus on things that counts. And I think that comes from delivering a compelling pitch, having the numbers that you need to reinforce your view and conviction. But also I think the element that really shouldn't go away is speaking to people, speaking to management teams, because that's how you can kind of get like certain tells from folks about, you know, whether they're going to be able to do this, whether they have conviction, whether they're like leaning into something too hard or, or, you know, um, showboating or what have you, or, you know, um, avoiding something that's like more important than, than they're letting on. Like that human element, I think is something that is really important and needs to stay. And I think that's, that's kind of how the puck is
Speaker 1moving. And so for the senior professionals, was that something where the work would be getting done? It would end up on their desk and they're the ones that are supposed to extract the insights from that. And you're saying that now, the juniors have the ability, they have the time to actually deliver those insights, you know, to one layer above that next senior person themselves. Um, just because they have the time, they have the time to think deeply about the data that they've just compiled and analyzed.
Speaker 2Yeah. I mean, I think it's a bit of a mix where, you know, there's been structures where, okay, on the, on one side, it's the deal lead, the MD, VP, associate, et cetera, on like a private equity, private credit side. And then on like the public credit or hedge fund side, you have like a senior analyst and then a junior analyst helping them out. Um, what I described, it kind of sounds like that would replace the junior analyst or associate in some instances and some shops, maybe it does, but also I think the folks that might be well positioned are those like mid-level folks who understand the industry well, um, are kind of like advancing well relative to some more senior professionals. And they're also kind of AI forward. Like, those are folks that I think can do the job of both an associate and like a principal director type quite well. So I think it's kind of a mix. Like I would, I wouldn't necessarily lean on the fact that junior analysts would be replaced by this. I would think it turbocharges them. Um, and I think if senior analysts don't know how to properly use AI, then you can't just say, oh, I'm just going to have AI instead of a junior analyst.
Speaker 1AI is perhaps a bigger threat to, um, maybe people who are 10 years into the industry, think they, they know enough and are not willing to put in the work to learn how to use these new
Speaker 2tools than it is the juniors. I think it's going to be very shop dependent and also industry dependent. Like, I don't think it, I don't think it would eat away at like the principal in like a private equity or, um, private credit fund. Cause that's like very relationship based and process based, but I, I think it eats away at like the principal and like a private equity or, um, private credit fund. Cause that's like very relationship based and process based, but I, I think it eats away at like some of that analyst to VP level type process. And, um, I guess kind of the ladder of like, oh, I need, I need this person to check that this person to diligence that if it's like a four to five person team, it probably eats away at like one of those more junior type roles.
Speaker 1Okay. Well then I guess, how do you determine which shops are going to go which way? Right. How do you get that data? I think on the buy side of like, we're very,
Speaker 2we're very compensation oriented. Um, so if we get that data, it would be more on the culture side. And I think what we do see on the culture side is like people complain it's, it's top heavy, um, for, for a lot of parts or like, you know, the hours are bad or, you know, the room for advancement isn't as good as I think it is. So that kind of goes to my point where even though it really is some of the more senior folks who are probably more in danger from AI, um, the fact that they've kind of climbed the ladder to date makes them a little more insulated than you would historically think. Um, so I, I think, I think we see like the, valuable data that people are able to get comes from understanding, oh, is there going to be a VP seat for me? What is my, like, what should my carry? What's my bonus look like as a VP, as opposed to like, you know, as opposed to other things. Correct me if I'm wrong here, but it kind
Speaker 1of sounds like we're moving towards big law, right? Where, you know, they, there's just not any real partnerships left that you've got people being named non-equity partner. Like, is that the future for the industry? I think what's kind of funny is like a lot of these
Speaker 2private credit firms who sold, like the people who got the money from these sales were like only a handful of folks. And I, you know, that's, that's extremely compelling if you're one of the founding members or you got a, got a slice of equity, but you know, if you miss that and we're more senior, then I definitely understand feeling a little hurt. So I think the compensation comes from that. I think that's a really important piece of the pie. And that's usually like a three to five year vesting period where you, you, you vest incrementally. But then also like the carried interest component is, is huge. Like, I think that's, that's how a lot of private equity people are defined. Like they're, they're cash poor, but equity rich. So the fact that we haven't really had as many exits as we'd like is probably a big problem for, you know, some of these PE people who, who probably will like want to, you know, want to make a few million to 10 million
Speaker 1plus. So my question would be, you know, everyone was expecting Kevin Warsh to come in and we were going to get rate cuts. Now it looks like we're moving in the opposite direction. Um, is this being pushed out even further now?
Speaker 2Unfortunately, just the inflation environment is, is, is so sticky and, you know, we probably were cutting a little too early. Um, you know, obviously I, I don't feel super great about living in a labor market where all the jobs are healthcare and government, but, you know, rates clearly are, are going to stay a little higher. Um, it definitely does push things out and there's just so many different headwinds coming at you. Um, and I think that's, I think that's, I think, I think that's, I think that's, I think that's, I think that's, I think that's, I think that's, I think, I think that's, I think that's, I think that's, I think that's, I think that's, I think that's, I think, I think that's, I think that's, I think that's, I think that's, I think that's, I think that's, I think, I think that's, I think that's, I think that's, I think that's, I think that's, I think that's, I think, which means lower valuations, the AI risk, um, eating away at some of these business models. Like ultimately, if you paid like 14 times for something, but the mark you're back in 21, the market saying this is like a 11 times business now in, you know, even if EBIT has grown a little bit, like that's, that's like a tough pill to swallow. Like that's something people don't necessarily want to do. And I think that's why a lot of the conversation with private equity lately has kind of turned towards, you know, this may not be like the four to six year holding period that we were used to. And as a result, you know, we have to extend things out. Um, we have to manage the business better for incremental returns of dividend recaps and, and stuff like that. And refan refinancing our debt and Unitron refinancing, um, and having longer hold periods. But, you know, four years of like high rates, it definitely, definitely eats on a business. And I don't think that's something people were modeling for, uh, back in 21, 22. Well, I mean, they're not high rates historically,
Speaker 1like let's be clear about that. Like if you go for the, the median interest rate over like the history of the United States, um, they're not really that high historically. And so, you know, coming from the perspective of a traditionally public markets investor, where you get marked to market daily, you have to take your losses and, and that's, that's the game. Um, and if you're not right, like you, you get, you get shut down like very quickly. So, you know, I, I don't necessarily like feel bad for, for these professionals who, you know, took a 40 year bull market in bonds and, and with rates coming down, um, and thought that that was just going to continue forever when we hit the zero bound. I think a lot
Speaker 2of those people like the, you, you kind of sound like my mortgage banker in a, in a way, just comparing rates, uh, to where they are now versus like the eighties, et cetera. Like, I think a lot of the people who started in the eighties nineties or early nineties are retired, if not close to retirement. I think like the people that had an easy, we're like the 2010s people. Like I think everyone who's. Everyone who had like this 40 year bull market has already retired, recouped things. Um, it's just, there was so much training and so many people coming up from analysts to MD during the 2010s era that a lot of the mantra of that low rate fragmentation type growth has bled into the 2020s. And that wasn't necessarily something that's sustainable. So I think, I think that's the disconnect. And I think the argument more so is like, oh, you know, there's people who haven't been through a recession at all. Like there's a lot of people who entered the industry in 07, 09, and, you know, they, they had like a world of hurt because they had a really tough time finding a job or they had to deal with like some really messy situations. But then a lot of people after that, they haven't really been as challenged as much. Like sure. There was like some energy stuff, but that was one industry COVID. Um, you know, a lot of that was like, sure revenue went to zero for a lot of these industries, but there was so much relief and kind of like a, you know, a V shaped recovery that a lot of that worked out fine. Um, so I, I definitely think to your point, there's a lot of folks who haven't been through real, you know, a real longer rate environment compared to like the 2010s. And I think that's the problem because so much of that investing philosophy from analyst MD was built off of a rate environment, uh, 10 to 15 years ago. That doesn't exist today.
Speaker 1Yeah. And I guess, you know, it sounds to me like people didn't really learn as much critical thinking skills as they needed. They learned a playbook rate that worked in an environment and they assumed that it would work forever. And when you talk about what people are going to need to go learn how to do moving forward, it's improve margins, grow EBITDA, learn skills that allow you to turn over more rocks, learn, learn new skills that allow you to, to apply, to find better opportunities. Um, because the opportunities that people have have deemed to be economic are just no longer there. And so that means you're just going to have to turn over more
Speaker 2rocks. Yeah, absolutely. And I mean, I, I don't want to like discredit investors as of today, because there's a lot of folks who are already doing that and have been doing that for 10 to 20 years. It's just, there's been a lot of easy levers to pull, which made people a little complacent. And some of that's been on the credit side too, because there was a period where like I started in software credit investing and like you could invest in like every single software company, um, that was coming into a CLO back in the late 2010s and be fine, like strip, like some of them traded down a little bit, but like this was pretty much all part paper, like no defaults for the most part. Um, and that, that whole landscape is just flipped on his head. So I think that's something that, uh, you know, people need to be aware of where you can't just be super docile. We can't just wave in investments. Um, you need to really dig deeper.
Speaker 1So on the, on the credit side, we are seeing things trade down, but we aren't really seeing the defaults yet. I mean, do you think that's coming?
Speaker 2Yeah. I mean, I think the big thing to think about here is like revenue growth should actually look pretty good for a lot of software companies, um, for this year, for even next year. I think the big question is when you get to the time to amend and extend, or the time to refinance in 27, 28, 29, like there's a ton of maturities in the, in the late twenties. Does anyone actually want to take that bet? Do people want to continue on? Cause that's the issue. Like I've seen with a lot of cyclically or secularly declining names where like it's, let's say it's like broadcasting, for example, like we know broadcasting is dying. Um, like the user base, the people who are broadcast customers are like literally dying, unfortunately. So it's just something that's like a melting ice cube to an extent. I think you would see that with software where, you know, you have a competitor who is able to add an add on, add on product. Um, you can't do pricing per seat anymore. Uh, you're not necessarily as insulated as, as you once thought, and you need to spend more on R and D or tokens, what have you, like, there's just so many, there's like 10 different things hitting these software companies at one time. In addition to the fact that like, historically you just lever these businesses seven times and feel fine, which is like, you know, that's a very high leverage profile relative to like some of these businesses. Um, you know, like five, 5.5, so just all that just really, really hits software. And I think if I'm a software investor today, um, if I haven't de-risked, like I'd probably find times like while things are tight to de-risk, um, to get out or, you know, figure out like some sort of comfort level with like what I'm actually willing to own. I think, I think a lot of people have spent time on that. Um, but I think, I think some people are like a little too complacent or, um, buying the dip. And, you know, I think, I think three years from now, software and, and, you know, levered software could look a lot uglier. Well, I think one of the other
Speaker 1questions about the refinancing is the, the obvious thing might be to go, oh, we'll just go put it into data centers, right? You've got these data centers that are essentially backed by the AAA rated credit of the hyperscalers. But something that we've been hearing from people is just like the deal size, the check size is just so big that for credit where you need to have a lot more bets in a fund, it's really hard to be able to participate unless you are the Apollos of the world in a lot of this data center financing. I think that really ties into what
Speaker 2we've been discussing where like the big guys, like the big asset managers who are able to fundraise, who can deploy a ton of capital, I think they're actually in a really good shape. The industry has definitely gravitated towards like these top five types of folks. And then I think beyond that, like the middle market, lower middle market, the really like roll up your sleeves. Is the other interesting part. But yeah, like I think if I'm in a top shop where I'm able to deploy a ton of capital and be like, you know, almost the lender of last resort other than the Fed, like I think that's an extremely compelling place to be. And if you're just kind of in the middle, that's less compelling of a place to be. How do you determine which path is right for you
Speaker 1between that lower middle market where you're going to get your hands dirty, you're going to learn how to operate a business, you might get more visibility. With management teams, et cetera, and making it and choosing that big firm because because you're saying the big firms are getting more capital, but perhaps the opportunity to rise up within the firms, it's going to be even harder, you're going to need to be even more special. So how should you as a as an individual decide which track is right for you? I think early on in your
Speaker 2career, you should index for prestige. You know, you want to work at best investment bank, the best types of group. The best type of opportunities as you possibly can. And then from there, I think you want to have time spent, you know, if I'm like, if I'm an IB to PE type person, I want to work at the most prestigious, you know, most well known, most high visibility type of firm. And then from there, I have a ton of optionality of, you know, what do I actually like to do? Like, I think that's the thing 25 year olds should be thinking about, like, what I actually like to do. How long do I want to work in finance? And like, where do I want to live? Like, I think a lot of those folks would stay in New York City, but they might go to San Francisco, Chicago as well. Maybe they go to Florida, you know, you where you can save a shit ton of money, you know, by not having to pay state tax. So there's a lot of different things like you can go the hedge fund route, you can keep going the private equity route. I think the route that's like extremely less compelling now is the MBA route, unless you come from generational wealth, or you just you desperately need to, you know, pivot into something or you're, you know, or you served our country, and you know, you're, it's paying for you to go to an MBA program. I think those are the types, the three types of people who should be going. But I think a lot of people are kind of like LBOing themselves on an MBA. And there's just rapid uncertainty in the market, especially relative to like 10 years ago, just because of AI, where, like the workforce is dramatically changing. And do you really want to take your self out of that for two years? Like, I think that's something that's a little bit harder to justify now. So you have the hedge fund, you have the pre PE route, maybe your private credit, maybe your small business, too. I think that's compelling. And then also, like, you know, I can go way more on the small business side. But like, the other component is like, if you are able to transition to AI, where, like, I think a guy who did a quick investment banking stint, and then, you know, got super senior at open AI, was was like light cap. And like, you know, if you are able to pivot into like a high growth industry, like, I think that's something you should take, you know, I would be skeptical about just like jumping at any AI opportunity, because I think, I think the biggest bubble right now isn't anthropic or open AI, I think it's like some of these Siri B, series, I type companies that just continuously raise financing, but can't go public and, you know, are kind of stuck where they are. And maybe Claude eats their business model in in a year. Like, that's less compelling. But like, I think if you can find like, a very AI forward company, then you should probably go that route, too.
Speaker 1Yeah, it's funny, I've heard people say that, um, and this is related to what you said about small business that, like founding is essentially de risk, like, that there's so much money out there for founders, and they're able to get some liquidity relatively early that, like to go out and be a founder of a company is actually a pretty good bet these days. But to go be like a first 10 employees is a little bit or anything, anything before there's a clear exit on the horizon is a little bit more risky. On that, in the in the AI world, just because of exactly what you said, like, there's so much uncertainty, and you're going to have this period where you've got a brand on your resume for however many years that you're waiting, you know, to get your exit, that that doesn't mean anything to anyone.
Speaker 2I think that's very well said. And, you know, just to like, to my own horn a little bit, like, pretty much I have, you know, I have the high yield hairy business. And what we've done is, you know, I was just like making jokes on the internet in 2020. And virtually unheard of for a few years, just posting like a lot. And it really blew up starting in 2023. This is something I was able to like go full time on in 2025 via, you know, like social media marketing. And, you know, that's, that's not necessarily something I would call de-risk. Like, sure, you could raise some money. But as someone who has deployed preferred equity, I'm not one who wants to take preferred equity. So I'm not one who wants to take preferred equity. But I'm not one who wants to take preferred equity. And I'm not one who wants to take preferred equity. And I'm not one who wants to take preferred equity. And I'm not one who wants to take preferred equity. So, you know, the entrepreneurship part is extremely compelling. I have a lot of joy from it. And I think we're going to provide a lot of value with what we're building. But, you know, it's definitely the founder element being de-risked and a lot of people gravitating towards that definitely gives me a little bit of like a bubble worry where, you know, everyone can just go into YC and do what have you like. Some of those folks will run into trouble. But clearly, like, some of the bets that I wish I took or other people wish they took are some of these massive AI or Silicon Valley stories that have just, you know, grown exponentially and allowed people to make a ton of money. Like, I think I think that's something like more people should be turning towards. And I think some finance people have turned towards that, but not enough.
Speaker 1Yeah, and it brings up the question of like, what is the job that the 22 year old graduating from undergrad wants these days at from an elite school? You know, if you go back to the 80s and 90s, it was obviously investment banking, that was the place to be. If you graduated from a top school, you had good grades going to Wall Street was pretty much, you know, a license to print money. And then that changed. And you had the period where like the hedge funds have been have been great. And now it feels like it's the frontier labs. And then simultaneously, you know, the trading firms, like the jumps, drain streets, Susquehanna, those are sort of like the top coveted jobs at a lot of these IV IV plus schools. And, you know, I wonder where does the buy side, whether it's private equity, private credit, and we can include investment banking, you know, sit in that hierarchy of the top jobs.
Speaker 2We're very, and even my follower base is very, I, be private equity, private credit, buy side asset management focused, but a little less so hedge fund focused. But we do have a decent amount of hedge fund data on buy side hub. And we'll get PMs on there. And those will be the people who are compensated the most like, sure that our average users like 300 makes $350,000 a year. But we'll get hedge fund people, you know, analysts who, even if they're at a credit hedge fund, or if they're at the big name firm, you know, they're, they're getting like a 700k bonus, if not more, as an analyst, like, it's very skill based. And like, the people that have those skills are able to perform extremely well. The PMs that come on our platform are making 10s of million dollars a year. Like it's, it's really mind boggling. But you know, those folks are quite smart. I think the archetype for a lot of people that follow me are not necessarily like the Jane Street Citadel types. You know, sometimes they are. But like, a lot of the people that follow me, like played, played sports in high school and college. And, you know, they just kind of gravitate towards IB, maybe they're a little more, a little less mathematic. You know, I think the students who do have that, like mathematical charge and that capability, like they should absolutely go and do this Citadel Jane Street type route, because the compensation is insane. Even if they don't stick with it, like, there's just so many exchanges Street folks who are now founders of these massive companies. definitely won't push back there. It's definitely the most attractive job. It's just not necessarily what the people who follow me are getting into. But I think, hey, if I could do it, if other people could do it, then I think we'd be more inclined to go that route because the compensation
Speaker 1is nuts. I was a physics major and people were like, if you can't do math, do physics. If you can't do physics, do economics. And there's a lot of money to be made all throughout that spectrum, but it definitely does feel like sometimes the intellectual firepower that it takes now in the public markets is pretty insane. It's something that I cover a lot, and people ask me all the time, why didn't you try to go into trading? I'm like, one, I don't know if I could have ever gotten a job in it in the first place. And then two, I think it's highly unlikely that I would have been able to survive given it's uncertain to what degree a lot of the people were successful. are just winners in the lucky monkey contest. And then the people who truly have edge are like, you know, it's like watching, I like to say it's like when you play basketball in middle school, and there's like a 13 year old who can dunk, you're like, oh, that's the guy who's going to play college ball. Like that's, that's sometimes how it feels. Yeah, absolutely. I mean, I've
Speaker 2worked at like a pretty well known firm. And sometimes like the intellectual capabilities of people just gives you some level of like empowerment. Yeah, that's a good point. I think that's a really good point. I think it's like, you know, it's tough to manage. And, you know, it forces you to like work harder and, you know, do your best. But you definitely also need to be smart about like, you know, what are you good at? What's your limitation? Like, for any finance professional or student, like you want to play a game that you're good at, like, and I think that's how people should really think about their career choices.
Speaker 1Okay, so it's about what games you're good at, what games are still going to be around, I guess, you know, we've talked a lot, there's a lot of nuance here. So I would ask, you know, in closing, if we could sum it up a little bit, like, what is your view on the future of,
Speaker 2and we'll start with private credit? I don't think all of retail is coming back. You know, they've, they've just let, they've made a bad impression upon a lot of retail folks, and it's been very sensationalized. So that's in some trouble. I think for a lot of institutions, the value prop of private credit is pretty clear. I think a lot of software deals should be going penciled down. Now, I still think private credit is a very compelling career opportunity, because it's taking share from banks, from public credit. So I wouldn't get super draconian, like, sure, there's going to be fewer seats, but not that, you know, maybe like we're talking 10 to 20%. But that's AI coming for everything. So that just comes with the territory. Okay, now on the private equity side, I think people are gonna have to acquire small businesses. You know, if you're an investment professional, like, you should be saving up for a million, few million, etc. Like, you know, work your career, like, learn your trade. And then maybe you kind of want to optimize for a career where, hey, I can buy a business that's 250k to a million dollars of EBITDA, and run this for 20 years, and then exit, like, that'll be my career. Like, I think that's something people should go for. But I think you want to be at a big shop, big institution, or you want to be at, like, a lower middle market, middle market firm that's, like, actually growing and fundraising. Because I think there's kind of, like, there's a bunch of carcasses in, like, the smaller middle market side that people aren't necessarily aware of, unless you're in the industry. And I think that's where, like, the trouble is. Like, you don't want to, you don't want to put your eggs in those baskets. Like, you need to figure out, like, do I have a career as a private equity investor, or do I need to, like, make sure I'm able to buy a small business one day?
Speaker 1And really, you should be planning for both. Okay. Now, I know we're focused on the buy side, but as we said, it's kind of the year of the investment banker. How much of that is banking is back in general versus just this environment with SpaceX and OpenAI and Anthropic and all this M&A? And if we were to have a change in the presidency, and it's not a Republican, and we start to go back to a tighter... FTC, do you think that this investment banking renaissance is going to come to a swift end?
Speaker 2So I think what people forget about, like, it wasn't that long ago where people were getting zero bonuses back in 2022, 23 type era, depending on deal flow, depending on your shop. Like, that was near the end of Credit Suisse, for example. Like, we had a lot of banks who went under. So things can get quite dicey. And banking, you know, there's not that AUM component. Like, things can happen, like, very negatively, very fast. And during that period, there were a lot of 10 to 20% layoffs in banking. You know, I've seen layoffs in banking. Like, it's not fun. It happens. It's like a cyclical business. So, you know, you can't get too high on the high, and you can't get too low on the low. Like, as long as you're like a top, well-capitalized bank, you're going to be fine. You shouldn't pretend that this is something that happens year after year. So, you know, I think people need to recognize, like, yeah, this is a great year. Next year, it could probably be the same. Like, you know, if we do get a lower rate environment and you have deregulation, those are all positives, too. But if you get more regulation, you have higher rates, et cetera, that's also a negative. So I always tell people to, like, spend two to three years in banking or banking research and then go move on to the buy side. But if you really like banking, like, you know, someone has to stick around and be a director, MD, et cetera. So you can stick around, but, you know, you just got to make sure you're building the right skill set.
Speaker 1Okay. And when those layoffs do happen, what does it mean for the buy side? Do all those people try and jump into private credit, private equity? Are they able to make that transition? Does it make it harder for those on the buy side if and when we do get that turnaround in banking?
Speaker 2When you're laid off, it's so much harder to get a job from, like, a finance perspective. I haven't laid off, thankfully. But, you know, for the folks who have had to deal with it, I think it's a little harder. And normally where they gravitate towards is, like, some of the smaller banks instead, as opposed to making a buy side leap. But yeah, look, direct lending and such is competitive. There's more investment bankers who are trying to go into private credit and more people getting hired out of school and people from private equity jumping into private credit. And it kind of used to be, like, you could work at, like, corporate banking or, like, you know, a non-IB type of role and work your way into private credit. I think that's a little harder than it used to be. All right, Harry. Well, let's wrap it up there.
Speaker 1I want to ask you a little bit about what you're doing with the buy side hub and your High Yield Harry newsletter. Where can people find out more about you and sign up for these services?
Speaker 2Yeah, absolutely. So I'm mainly on X, started on Instagram, but you can just go look at High Yield Harry on X. I have a couple of newsletters, like the High Yield Harry newsletter, the Wall Street Journal newsletter, and I just love talking about financial markets, careers, stuff like that. So always writing. And then buy side hub, we've over 15,000 users. We welcome everyone from the buy side to bankers just to provide extremely robust U.S. compensation data points across all industries, all levels. And, you know, here to help you benchmark your compensation, figure out if firms are good or not. And look, make sure you're getting paid what you deserve to get paid.
Speaker 1All right, Harry. Well, it's been a lot of fun. Hope to do it again soon.
Speaker 2Thanks, Max. Love being here.
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