More on credit opportunity funds
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"Everyone’s raising a lot of money, and by the time that money’s in place, is the opportunity going to be there?" |
Thanks to the kind of lending practices that precipitated this summer’s credit crunch, many managers in the credit markets have long seen distressed debt as the next big thing. As long ago as 2005, firms such as Intermediate Capital Managers, Blue Bay Asset Management and Babson Capital were establishing credit opportunity funds to take advantage of stressed and distressed assets should the market turn. Now that it has, their ranks have been joined by a surge of new entrants with the same strategy in mind. But those now looking to set up such funds will be joining a very crowded marketplace. Perhaps as a reflection of the terms on which their own deals were being underwritten, many private equity sponsors themselves set up credit opportunity and distressed debt funds some time ago. Kohlberg Kravis Roberts’s $1 billion Strategic Capital Fund, Blackstone’s $500 million distressed debt fund and Carlyle Group’s $1 billion distressed debt fund were all established in 2006, when distressed bonds constituted less than 5% of the junk bond market.