The popular narrative of a looming 'wall of maturities' is a fallacy used in investor presentations. Good companies proactively refinance their debt well ahead of time. It's only the poorly managed or fundamentally flawed businesses that are unable to refinance and face a maturity crisis, a fact the market quickly identifies.
When a private equity investment thesis is primarily built around a single person (e.g., a star CEO), it's a sign of weak conviction in the underlying business. If that person fails or leaves, the entire rationale for the investment collapses, revealing a lack of fundamental belief in the company's industry or competitive position.
Success as a junior investment banking analyst has little to do with developing investment acumen. The job primarily tests one's ability to manage a process—checking models, formatting decks, handling logistics—and endure abuse. Being good at these perfunctory tasks doesn't mean you will be a great investor.
The classic distressed debt strategy is broken. Market dislocation windows are now incredibly narrow, often lasting just days. Furthermore, low interest rates for the past decade eliminated the ability to earn meaningful carry on discounted debt. This has forced distressed funds to rebrand as 'capital solutions' and focus on private, structured deals.
Internal Rate of Return (IRR) is a misleading metric because it implicitly assumes that returned capital can be redeployed at the same high rate, which is unrealistic. The true goal is compounding money over time. Investors should focus more on the multiple of capital returned and the average capital deployed over the fund's life.
In a distressed scenario, simply asserting seniority as a junior capital provider is ineffective. You cannot force the majority owner and management team, whom you've just told are worthless, to run the business for your benefit. The only viable path is to renegotiate and realign incentives for all parties to work towards a recovery together.
To source proprietary hybrid capital deals, avoid the capital markets teams at PE firms, as their job is to minimize cost of capital. Instead, build relationships directly with individual deal partners in specific industries. This allows you to become a trusted, go-to provider for complex, time-sensitive situations where speed and certainty are valued over price.
In the hybrid capital market, the ability to deploy capital at scale is a significant competitive advantage. While many firms can handle smaller $20-40 million deals, very few can quickly underwrite and commit to a $500+ million transaction. This scarcity of scaled players creates a less competitive, inefficient market for those who can operate at that level.