High Yield 2022 Compensation Survey Results:

Welcome to the first High Yield Harry newsletter! I’m pumped to get started – so here’s a quick intro:

The goal of the High Yield Harry newsletter is to be a contra to typical newsletters: While traditional newsletters highlight several topics with brevity, I’d rather have this monthly newsletter focus more on deep-dives or topical items that interest me and share my findings.

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Lastly – as many of you may have seen with the account last year – it’s crucial to be able to communicate with everyone across different channels in case one channel goes down. In May 2021 – I was suspended from Instagram for a month for reporting an imposter account twice. An algorithm made the decision to ban the HYH account immediately without appeal. If it wasn’t for some accounts getting me in touch with people at Facebook to look at the case firsthand – I would’ve been toast. It’s scary stuff and reinforces the obvious investing lesson to not keep all your eggs in one basket.

Alright so let’s get into it: The first topic that makes sense is taking a look at the current state of the High Yield Professional market*. *The High Yield Professional market can mean anyone from buyside performing loans or unsecured note analysts, distressed/opportunistic funds, sell-side debt-focused bankers, or direct lenders (through commercial banks or through BDCs, etc.). Where I sit and where I have sat is naturally left vague given it’s highly unlikely you’ll see me take the Meme Account exit opp. This should be topical for even those not currently in the credit space, as our market has seen significant growth, and there’s probably a lot of people will end up migrating to the credit side of the house at some point.

Thanks a ton for all the datapoints y’all provided. Stuff like this doesn’t happen with your help and support, for which I am immensely grateful.

High level findings:

·         High Yield Professionals are getting compensated relatively well while simultaneously enjoying reasonable work life balance and WFH optionality.

·         There is general agreement that lending standards are relatively loose and that private credit will continue to eat into broadly syndicated and banking.

·         The bulk of respondents acknowledged that economic sentiment is becoming increasingly negative.

Please note I left out every category where the sample set was too small. This included S&T, Real Estate, Credit Research, and Credit Risk; as well as geographical data from the U.K. and Canada. I’m sorry to the fam across the pond – just not enough data for the U.K. Y’all gotta get on a U.K. based account to run a comp survey. With that said, if there’s any questions on any of those pockets, please DM and I’ll try to see if I have any information to help.

Without further ado – here’s a summary of the compensation data I’ve collected:

Comments on Sentiment:

Sentiment is significantly better in Credit than IB. In most instances, people are happier and note the trade-off with work/life balance and room to WFH with lower comp. There really weren’t a lot of complaints in the survey – excluding those on the distressed and LevFin side of the house. Some of the feedback on the <60 hour a week positions were more so that comp isn’t keeping up to street levels, which I guess is part of the tradeoff we accept by being in a stickier and more stable asset class. Generally though, I viewed a lot of this compensation information as relatively attractive given that 55-60 hour weeks aren't *that* bad.

I asked about sentiment about the current lending environment/economic environment and broadly received negative sentiment. Respondents noted the importance of focusing on selective credit analysis over playing an AUM game at this stage in the cycle, high leverage/weaker underwriting standards, and direct lending eating into broadly syndicated loan (BSL) market share. 

Additionally, most respondents acknowledge how loose lending standards are and how this is structurally unlikely to change. However, most participants acknowledged that despite the increased competition, we’re relatively early innings in the importance of providing private capital. Below are some of the comments I found most helpful.

Ultimately – these findings aren’t too surprising. Credit Analysts are fundamentally built to be more pessimistic than the average analyst and everyone has been complaining about loose docs since I started in the industry (while not really doing anything about it). I’m of course quite worried about how much brutalizing inflation the average consumer can endure, so these findings were relatively in line with my thinking that we’re at the end of this cycle. Respondents also called out that the market has been relatively open for new entrants on the performing credit and direct lending side to support buyout capital. Longer term, I’m definitely a believer of more consolidation across the high yield landscape, as fundamentally this is a Game of Fees. Carlyle acquiring CBAM last week was a good example of consolidation on the public credit side that may take shape over the longer term.

Some closing thoughts: The question we should think about longer term is what’s driving elevated comp? Is it 1) Significant deal flow or 2) do the most talented 2016-2022 graduates not want to work in more intensive, traditional industries anymore? It’s probably a combination of both – so I think we need to be thoughtful about what happens when deal flow slows down. I think structurally, barring a significant downturn, we’ve established new minimums for compensation (IB Analysts getting $100k base out of the gates for example) and that won’t go away. If the labor pool for qualified finance professionals is significantly smaller than it used to be, and given the structural changes caused by covid-19, you also have the opportunity to stand up for yourself more and gain more benefits (higher compensation, 1-2 days WFH, ability to work from anywhere sporadically throughout the year). But look – if cuts need to be made when deal flow slows down, then my initial thinking is you probably don’t want to be the one analyst who refuses to come back in the office when the music stops. Who knows how compensation trends play out going into 2023, but there’s probably a fine line between 1) advocating for better compensation/treatment and 2) paying your dues going into a more challenging economic environment.

That’s all for now – it’s been a pleasure writing this. Stay tuned for the next edition sometime in April and make sure you subscribe. Until next time.