Distressed Private Equity Funds

by Kouji Sonobe

  • 09 Aug 2010
  • PE

Preqin data indicates that in the past five years USD 150.4 billion has been raised by distressed private equity funds globally. Of this figure, 85 distressed debt vehicles raised an aggregate USD 119 billion. Special situation funds collected USD 21.3 billion in capital commitments from 2005 to present and turnaround private equity funds gathered USD 10 billion in funding in the same period.

From 2006 to 2008, investor commitments to distressed debt funds increased, from USD 11.4 billion in 2006 to USD 43.1 billion in 2008. With the onset of the financial crisis, funds raised by distressed debt funds decreased, with only USD 5.2 billion in capital raised in 2009. A similar trend occurred within the special situation funds market, which peaked in 2007 at USD 7.8 billion and reached a low of USD 2.1 billion in 2009.

In the year to date, 15 distressed debt, special situation and turnaround funds have closed receiving a total of USD 14.7 billion in capital commitments.

There are currently 57 distressed private equity vehicles on the road seeking an aggregate USD 40.1 billion in capital. Distressed debt funds are seeking the largest proportion of investor commitments, with 28 funds in the market looking to raise USD 27.4 billion. Turnaround and special situation vehicles are seeking an aggregate USD 6.8 billion and USD 5.8 billion respectively.

The largest distressed debt fund on the road globally is Oaktree Capital Management’s, OCM Opportunity Fund VIII. Seeking USD 5 billion in investor commitments, the fund focuses on pursuing non-control, distressed debt investments in fundamentally undervalued debt securities of distressed companies in the U.S., Europe and, to a lesser extent, Asia.

WLR Recovery Fund V and the Carlyle Distressed Financial Services Fund are the next two largest distressed debt funds in the market. WLR Recover Fund V, a USD 4 billion distressed debt vehicle from WL Ross & Co., invests in and restructures financially distressed companies. The vehicle focuses primarily on the industrial, construction, chemical, energy and infrastructure sectors. The Carlyle Groups Distressed Financial Services Fund is the third largest distressed fund on the road. Seeking USD 3 billion, the special situations fund focuses on distressed financial service firms primarily in the U.S.

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