Marc Lasry |
Assets at Marc Lasry’s Avenue Capital Group have dipped to $12.3 billion as of July 1 from $18 billion in January as the firm has been liquidating the Avenue Special Situations Fund V, a private equity vehicle that was launched in 2007. Investors said Lasry thought there was no more upside to be gained in distressed credit investing in Fund V and decided to start liquidating it and giving back money at the end of last year. The fund produced a 12.7% net annualized internal rate of return since inception. Fund V, which managed $9.5 billion at its peak, had given investors back most of their capital by the end of July. As a result, Avenue’s total assets have declined to their January 2007 level of $12.4 billion (in the interim, the firm’s U.S. assets have fluctuated between $16 billion and $20 billion). Fund V had initially raised $6 billion before Avenue began investing the money.
Avenue was aiming to raise about $6 billion for its next special situations fund, the Avenue Special Situations Fund VI, according to investors and consultants, but managed to raise only about $2 billion. Avenue started raising money for this fund toward the end of 2009 and closed it in the beginning of last year. “There is less to do on the distressed side, so it makes sense to raise less money,” said Lasry.
In 2007, many large institutional investors saw opportunity in the distressed debt market and piled into Avenue’s Fund V. These included CalPERS, the Washington State Investment Board, the New Jersey Treasury Department’s Division of Investment and the Pennsylvania Public School Employees’ Retirement System, among others.
“The current U.S. market dynamics have created an attractive environment for investing in distressed debt and securities,” wrote Charles Spiller, PSERS’ director of private markets and real estate, in a letter to the board in 2007 recommending an investment in Avenue’s fund. “Recent years of record high yield issuance, unsustainable leverage levels, a weakening housing market, volatile commodity prices and the likelihood of significantly higher default rates in the future all support the conclusion,” Spiller wrote. He also noted that “default rates will trend significantly higher in 2007 and 2008 and lead to a material increase in the supply of future opportunities.”
Avenue has recently been raising money in some of its other strategies. The firm received a $145 million commitment from the Massachusetts Pension Reserves Investment Management Board for its Avenue Europe Special Situations Fund II in August and also garnered an investment in June from the Louisiana State University Foundation in its Avenue Global Opportunities Fund. In July, the South Carolina Retirement Systems also doubled its strategic partnership with Avenue to $500 million. South Carolina has a partnership with Avenue in which the pension can invest up to $500 million across Avenue’s strategies as opportunities arise.
