Preqin's Funds in Market database shows there are currently 68 distressed private equity funds in market seeking an aggregate $49.2bn in capital commitments, a category that includes distressed debt, special situations and turnaround strategies. Since the onset of the financial crisis, LP's appetite for distressed private equity has significantly increased. This has been driven by the increased distressed private equity investment opportunities due to the contraction of debt being offered through more traditional sources, and companies experiencing significant financial difficulties. Alongside this, there has been strong historical performance of distressed private equity funds in the last decade concerning median IRR figures.
Of all distressed private equity funds in market, the average target size is $724mn and 41% of these funds have already held an interim close. The fund with the largest target size is GSO Capital Solutions Fund II, which is seeking to raise $5bn. This is followed by Cerberus Institutional Partners V and Apollo European Principal Finance Fund II, targeting $3.75bn and €2.5bn respectively. Of the three distressed fund types, distressed debt is currently the most popular investment strategy, making up 43% of the category; special situation funds account for 37% and turnaround funds make up the remaining 20%.
In comparison to January 2011, there has been an increase in both the number of funds and the capital sought for distressed private equity investments, with 64 distressed private equity funds in market seeking an aggregate $47.8bn at the start of 2011. Of the distressed private equity funds in market as of January 2013, 28% are being raised by first-time fund managers, which may prove a challenging task, given tough fundraising conditions across the whole private equity industry.