- Latest debt fund will have at least two years to invest
- If fund hits target, will be 78% bigger than predecessor
Oak Hill Advisors is trying to gather $2 billion for its latest distressed debt fund, according to two people with knowledge of the fundraising.
The firm will have the option of waiting two years or more to invest the money, the people said, asking not to be identified because the information is private.
Fundraising for distressed debt investments has surged, sparked by economic uncertainty. If Oak Hill meets the target for its latest fund, it will be 78 percent bigger than its predecessor.
OHA Strategic Credit Fund II, which will focus on North America and Europe, has a two-year standby period during which Oak Hill is not required to invest, with a potential one-year extension, one of the people said.
Oak Hill can begin investing the fund when defined trigger events occur. Those include an increase in U.S. or European high-yield spreads to more than 750 basis points, an increase in the U.S. distress ratio to more than 20 percent, an increase in the trailing-12-month default rate of U.S. high-yield bonds to 4 percent or a vote by the general partner and the majority of the advisory committee, the person said.
New York-based Oak Hill drew $1.125 billion for OHA Strategic Credit Fund LP in 2009 to invest in stressed and distressed loans. The total was 50 percent higher than the initial target of $750 million, according to a statement from the firm at the time.
Oak Hill will charge a 1.5 percent management fee based on the price of investments, with an 8 percent preferred return and 20 percent carried interest, according to one of the people.
Jim David, an external spokesman for Oak Hill at Kekst & Co., said the firm had no comment.
Distressed investment opportunities are expected to surge in the energy, mining, commodities and shipping sectors, Oak Hill co-founder and chief executive Glenn August said during a CNBC interview on Feb. 24. Tens of billions of dollars of restructuring are expected, even if oil prices bounce back to $45 a barrel, he said. Though oil prices stabilized this month in the mid-$30’s, they are down 24 percent over the past year.
Oak Hill has about $27 billion in assets under management.
North American and European fund managers had $52.9 billion in dry power to invest in distressed debt in January 2016, after $21.4 billion was raised in 2015, according to data from Preqin. There were 30 distressed debt funds being raised as of January, with a combined target of $43.5 billion, Preqin said.
Two of the biggest vehicles currently competing for limited partners’ commitments are U.S.-focused pools managed by Los Angeles-based Oaktree Capital Group LLC, which have a combined $10 billion target. Oaktree Opportunities Fund X is the main fund, with a $3 billion target, while Fund Xb, which has a $7 billion target, is a standby vehicle that can be activated if there is a surge in opportunities or a need for co-investment capital, according to a May 2015 report from investor Los Angeles City Employees’ Retirement System.
Paulson & Co. Inc., the New York-based hedge fund manager headed by John Paulson, is also in the market, seeking to raise $1.5 billion for a private equity fund to invest in companies going through bankruptcy or restructurings and to provide rescue finance. It will target the energy, metals and mining sectors, in particular.