Guggenheim Partners is just a short while away from formally locking down the first round of cash it wants to stash away for the next distressed cycle, as it plans to hold an initial close of a new fund within the next two months.
The investment firm, based in New York and Chicago, launched a distressed debt fund with a target of between $750 million and $1 billion, according to sources familiar with the situation. The first close, said to be between $250 million and $400 million, will consist of capital from returning investors, these people told PDI.
Guggenheim declined to comment.
The fund will invest in mid-market firms within a diverse array of a sectors, according to sources. These people said the fund will have a five-year investment period, which will allow Guggenheim to deploy the capital during the next credit crunch, even if the next distressed cycle is years away.
Christopher Boyle, who was recently hired from Black Diamond Capital Management, and Jeff Abrams, Guggenheim’s co-head of credit, will oversee the portfolio, according to sources. Michael Dussinger, formerly of Black Diamond and who has a background in restructuring, also joined Guggenheim, according to his LinkedIn.
Guggenheim is also still in the process of raising a private debt fund with a target of $1.5 billion, as PDI exclusively reported in May 2015. The investment firm’s private debt funds are part of its direct lending platform. It raised its first private debt fund, to the tune of $1.35 billion, in 2012.
In February, PDI also exclusively reported that Guggenheim corporate credit buys passed $12 billion last year. More than a third of that total, or $4.5 billion, went into directly negotiated investments. The credits included bank loans, high-yield and bridge facilities.
Despite an arguable lack of opportunities in distress for now, private credit firms are still raising billions in capital to deploy. Bain Capital closed a $3.1 billion distressed fund this week while Edelweiss plans to launch a $740 million to $1 billion distressed assets fund in August. HIG Bayside Capital also held a first close of €260 million on its first Italian distressed debt fund last month. Distressed behemoth Oaktree Capital Management reported $22.8 billion in dry powder, a record, in its second quarter earnings report.
According to PDI statistics, some 69 closed-end funds raised $46.1 billion in the first half of 2016, which represented a year-over-year decline of 22 percent. Of that, capital put into distressed funds accounted for one-third of the total amount raised.
While it may appear volatile on the surface, the global economy has largely withstood shocks, raising doubts about where we are in the credit cycle. Turmoil in the markets in January and February led some to believe investors were on the precipice of a new wave of corporate distress in 2016, yet the markets recovered. The same thing occurred after the June Brexit vote, when some began licking their chops for new distressed opportunities, as sources told PDI. However, the possibilities have yet to arise, as Oaktree noted on its earnings call.