| Jeffrey Aronson (Bloomberg) |
Centerbridge Partners has opened up its hedge funds to new capital for the first time in several years, according to several knowledgeable sources, including an investor.
The New York distressed-debt specialist has told investors it wants to be prepared for when opportunities open up, in the belief that when they do, they will be large and very attractive.
Presumably because it does not see these opportunities in the near future, Centerbridge is using a drawdown structure — tapping the capital only when it’s needed — for the new capital so that the cash does not drag down its performance.
The firm declined to comment.
Centerbridge is not the only firm raising money for potentially big opportunities in distressed credit.
Earlier this month Reuters reported that Marc Lasry’s New York–based Avenue Capital Group had raised $700 million of a planned maximum of $1.25 billion to invest in distressed and stressed North American energy and utilities companies.
In April we reported that York Capital Management raised about $500 million for its new fund, York European Distressed Credit Fund II.
We also recently reported that at the SALT conference in Las Vegas, Marathon Asset Management co-founder Bruce Richards said the New York credit and debt specialist is loading up on nonperforming loans from European banks secured by hard assets. He said many of them are selling for 40 cents to 60 cents on the dollar and that he had raised funds for this investment and is prepared to invest billions of dollars in it.
Richards is also buying the paper of beaten-down energy companies. He has taken this exposure from zero to 10 percent in long positions in energy exploration and production, and service companies.
In December we reported that Dallas-based multistrategy firm Carlson Capital was launching three new energy hedge funds, noting the sharp decline in oil prices “created an outstanding environment” to invest in both the debt and equity of companies throughout the industry.
Centerbridge was founded in 2006 by Jeffrey Aronson and Mark Gallogly. Aronson had managed distressed and leveraged loan portfolios at Angelo, Gordon & Co., while Gallogly was the former head of Blackstone Group’s Private Equity Group.
The firm had $25 billion at year-end. Of that sum, $11.1was in distressed-debt hedge funds, and the rest was in private equity/distressed-for-control investments.
The firm reported in its most recent 13F filing that it has about $1.7 billion in U.S. equity instruments. However, most of those assets are the result of earlier debt investments that were converted into equity. Centerbridge does not as a practice make equity investments.
These days have been tough for distressed investing, however. Centerbridge’s recent performance reflects this difficulty.
Centerbridge Credit Partners was down nearly 1 percent in the first quarter after dropping 0.7 percent in 2014, according to an investor.
HFR’s Distressed/Restructuring Index lost 1.4 percent in 2014 and was up only 0.8 percent in the first quarter of this year. The index added another 1 percent in April, though.
By eVestment’s calculation, the average distressed fund squeezed out a 0.6 percent profit in 2014 and was up 1.74 percent through the first four months of this year. However, eVestment notes in a recent report that the strategy suffered a seven-month drawdown that ended in January, losing 6.83 percent, on average, during that period.
Centerbridge Credit Partners was up 4.7 percent in the first half of 2014 but lost 1.4 percent in the third quarter and 4 percent in the fourth quarter.
In the second half of the year, the fund was said to have carried a moderate amount of cash, awaiting opportunities to deploy capital.
In the fourth quarter, Centerbridge was hurt by its investment in hotel operator Extended Stay America, after the company lowered its guidance. However, since its initial investment, Centerbridge has made multiples of its original money on the deal.
Centerbridge teamed up with Paulson & Co. and Blackstone to buy the company out of bankruptcy in 2010. When the hotel chain went public in November 2013, none of the three firms sold shares in the offering, but their paper gains at the time were nearly triple what they had paid.
A year or so ago, Paulson said in a report to its investors that its profit in Extended Stay across all of its funds was 245 percent of its original investment.
The stock closed Wednesday at about $19.75, just below its $20 initial public offering price.
