New York-based Atalaya Capital Management closed its sixth special opportunities fund on its $800 million hard-cap last week (31 March). The Atalaya Special Opportunities Fund VI had a $750 million target. The firm invests in a variety of distressed situations, opportunistic credit purchases and direct loans. It targets three investment areas: specialty finance, real estate and corporate credit.
Chief investment officer Ivan Zinn said the last two funds have been committing more capital to real estate and financial assets, rather than corporate credit. He explained this is because the corporate credit market has become more crowded with new business development company (BDC) and direct lending entrants, whereas he can find more of an edge in the other areas. “We like to fish in a pond that’s a little smaller,” he added.
The split between the three areas in the last two funds was at about 45 percent real estate, 35 percent financial assets and 20 percent corporate credit.
The firm’s financial assets team invests in credit cards, equipment leasing and consumer loans and other specialty finance instruments. The firm has been working out assets in this area since inception in 2006 and has built a competitive advantage in the space, Zinn said, especially as the major investment banks are scaling back on commercial finance.
Atalaya also acts as a loan buyer and lender in real estate. The firm deals in both commercial and residential real estate and buys whole loans. “We’ll buy assets from a bank or a liquidated fund or something that’s a little funkier,” Zinn said. Atalaya tends to focus on real estate assets in the Tri-State (New York, Connecticut and New Jersey) area.
Its corporate credit business invests in a wide range of industries in the US.
The fund is split about 50/50 in terms of direct origination and loan or asset purchases. In financial assets, the firm tends to originate more, while real estate involves more purchases at discounts. The corporate credit side is split evenly between origination and purchases.
Atalaya is charging a 1.5 percent management fee and a 20 percent incentive fee on an 8 percent hurdle rate. The firm’s fifth special opportunities fund posted a 12 percent net IRR. The sixth fund has a three-year investment period and a two-year harvest, with a one-year extension option.
The LPs in Fund VI were split into a third corporate pension funds, a third public pension funds and the rest among foundations and endowments. One recent investor was the Florida State Board of Administration, which committed $100 million to the fund.