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News
Hiring boom in direct lending finally runs out of steam
by Lisa Fu & Amelia Weitzman
The US direct lending market has found itself under repeated critical scrutiny over the past year. And for some credit professionals in this line of work, the news is taking another unwelcome turn.
A hiring frenzy over the last few years has now slowed sharply, shrinking the available job opportunities for mid-level and senior staff involved in the direct lending branch of private credit, according to financial recruiters and other market sources.
The shift reflects market challenges that have generated plenty of uncomfortable headlines this year, including a slowing deal pipeline, outflows from semi-liquid funds and concerns about investment valuations. Consolidation within the private credit industry has also dried up some job opportunities.
As a result, employment consultants have noticed fewer roles popping up for direct lending, in contrast to a recruitment drive over the past two years when firms were busy filling multiple positions from deal makers to execution specialists and legal experts.
“Direct lending this year is not as prevalent as in years past,” Eric Vaheb, a managing director at executive search firm Mission Staffing, told Creditflux. “If deal flow is lacking, then you don’t need to add additional people in order to get transactions over the finish line,” he said.
Other recruiters noted the same trend, as the firms that provide loans directly to private companies, bypassing the banking system, have been taking stock of their portfolios and staffing levels this year. Professionals who used to keep their ear to the ground for new roles did not hear about many leads this year, Brian Byck, a managing director at Odyssey Search Partners, told Creditflux.
Although the market has capital on hand, deal flows have slowed amid concerns over credit stress in the software industry and redemption pressure at perpetual non-traded business development companies. Without all these challenges, more job openings for originating deals would have been generated this year, Byck said.
From jobs frenzy to staffing freeze
Details of hiring freezes have also surfaced. One mid-market direct lender said the firm had paused recruitment and cut headcount recently. “It’s rough out there,” the lending source said, as private credit managers that ramped up over the past two years may be unable to deploy as quickly as expected or are facing investment losses.
Many direct lending firms focus on loans to sponsor-backed companies, typically where a private equity firm owns or is acquiring the borrower. A large section of this market, focusing on technology and software companies, has seen valuations and deal flows slip, but sponsors are reluctant to sell at a loss.
Even the newer direct lending firms, which grew quickly over the last few years and made recruitment a priority, have put senior-level hiring to one side, leaving an imbalance in the jobs market, according to Byck. “I would say the supply definitely outpaces the demand.”
As the private credit industry consolidates through mergers and acquisitions, some firms have focused on cost-cutting rather than hiring. Nevertheless, the scale of layoffs is described as limited, mostly targeting senior staff or those on the very bottom rungs.
There’s a lot of pent-up supply.
Mike Talaga
Global head of credit research
Janus Henderson Investors
The unlucky losers can struggle to find a new position. A source at a mid-market private credit fund was let go before the summer when the team was scaled back. The source, who is still seeking a new role, told Creditflux that the job market has been very tough.
But executive search companies identify a few bright spots in the hiring picture. Some junior associates remain in high demand, as private credit firms compete with other branches of finance for the sought-after skillset. Junior credit associates typically assess borrower risk and assist their more experienced colleagues in financial decision-making.
Bankers who advise on restructurings, as well as private equity firms, arrangers of collateralized loan obligations (CLOs), leveraged finance banks and public credit managers are all trying to hire these junior professionals. The talent pool is even being targeted by artificial intelligence companies, as career choices for junior credit staff have proliferated over the past five years. The associates would previously have stayed at leveraged finance banks or moved over to direct lending shops. Meanwhile, the number of new junior analysts at banks that serve as labor supply is static or shrinking, according to Byck at Odyssey Search Partners.
Another trend affecting hiring patterns is growth in credit dealings that do not involve a sponsor. Some firms are now looking to hire professionals with the relationships and commercial expertise to help them expand into direct loans to family- or founder-owned companies.
“Sourcing and originating deals direct-to-founder has been one part that I think hasn’t been dominated by any player in the game,” said Vaheb at Mission Staffing. “So it’s almost an open area of growth for a firm.
