Sound Point closes on $500m debut drawdown turnaround fund

The credit manager will make 10-12 investments from the vehicle, the firm said.

Sound Point Capital Management has held a final close on its inaugural closed-end credit fund, a $500 million vehicle that will invest in both private and public companies in transition or executing a turnaround.

The New York-based firm’s Strategic Capital Fund can underwrite deals of between $25 million and $200 million. It has already done six deals – two bankruptcy debtor-in-possession financings and four directly originated deals – the firm said. The vehicle, which is unlevered, will have 10-12 positions and hold sizes of between $30 million and $60 million.

“This is intended to be a fund where we structure and originate deals as capital solutions,” managing partner and chief investment officer Stephen Ketchum told Private Debt Investor. “There’s a hole in their balance sheet that needs filling. The distinguishing factor is this is sourced and originated and structured by us.”

The vehicle carries a 1.5 percent management fee on invested capital and a 20 percent incentive fee over a 7 percent hurdle rate. The fund, which has a full GP catch-up and a European-style waterfall, offers fee breaks for anchor investors that committed at least $75 million.

Its investors consist mainly of US public and private pension funds and an Australian institution, along with wealth managers, funds of funds and family offices. Texas County and District Retirement System committed $125 million to the pool of capital.

“[Head of capital solutions] Giacomo Picco had turned up some opportunities over the past several years like this,” Ketchum said, explaining why the firm launched the new fund. “We had a small pocket of capital, but we mostly had to go to our LPs and say, for example, ‘We have these interesting accounts receivable [investments] that we think will generate 15 percent return.’ A couple of our investors said, if you create a fund, we’ll invest.”

Distressed and special situations capital is attracting more interest from investors than almost all other credit asset classes, according to PDI Perspectives 2020, an annual survey of LPs. Some 23 percent of respondents plan to invest more in the strategy than they have in the past 12 months, second only to direct lending’s 29 percent.

Sound Point, which oversees $21 billion, also manages collateralised loan obligations and distressed credit funds.

The firm sold a minority stake to Dyal Capital Partners in April 2017. Sound Point put the proceeds toward an investment in a fund that allowed it to comply with CLO risk retention rules, which were subsequently struck down as they apply to broadly syndicated CLOs. In September 2018, the firm partnered with the Canada Pension Plan Investment Board, which invested $285 million in a newly created vehicle that would purchase equity in Sound Point CLOs.