Brendan McDermid/Reuters
- Private equity firm KKR is reviving its failed Special Situations Fund III to buy a wide range of corporate credit amid the coronavirus-fueled market rout, Bloomberg reported Monday.
- The new vehicle aims to gain client approval for reusing at least $217 million from the soured fund. KKR will inject $400 million into the fund from its own cash pile.
- The fund is primarily focused on discounted high-grade bonds, companies battered by the coronavirus’ immediate toll, and debt backed by real estate and other assets, according to Bloomberg.
- The move arrives as other financial sector giants execute similar strategies. Howard Marks’ Oaktree Capital aims to raise $15 billion for the world’s largest distressed debt fund, while Pimco is raising its own $3 billion vehicle of the same type.
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Private equity giant KKR is resurrecting its troubled Special Situations Fund III to buy corporate debt slammed by the coronavirus and heightened risk of default, Bloomberg reported Monday.
KKR changed the fund’s managers and shifted its strategy to focus on corporate bonds and loans, distressed or not. The special situations fund faced headwinds when it launched in 2019, from a then-rosy economic backdrop to an absence of appealing investments. With credit health recently dragged to historic lows amid the pandemic lockdown, the firm has fresh hope for the strategy.
The new vehicle, deemed the Dislocation Opportunities Fund, seeks to gain client approval for reusing at least $217 million from its failed precursor. KKR is also fronting $400 million of its own cash for the fund, Bloomberg reported, citing sources familiar with the plans.
The switch-up was first conceived on March 20, after a violent bout of market volatility tanked stocks and hiked fears of a deep economic recession. The credit team at KKR sought to jump on the opportunity but decided to revamp the soured special situations fund instead of waiting to establish an entirely new vehicle, Bloomberg reported.
The special situations fund held only $617 million in commitments by June 2019, compared to the $2 billion and $3.35 billion its two precursors raised. Some of the cash held in the third fund was raised from KKR’s own balance sheet, according to Bloomberg.
The fund is being pitched with a specific focus on discounted high-quality corporate debt, companies battered by the virus’ economic toll, and debt backed by real estate and other stable assets, according to the report.
The move comes as credit markets begin to rebound. The Federal Reserve’s announcement that it would begin buying corporate bonds helped stabilize the broad downtrend. Talk of additional government stimulus has kept credit investors optimistic for additional near-term gains.
KKR isn’t the only firm moving into the weakened market. Howard Marks’ Oaktree Capital plans to raise $15 billion for a record-sized distressed debt fund, while PIMCO is raising $3 billion for its own vehicle of the same strategy.
Disclaimer: KKR holds a majority stake in Business Insider’s parent company, Axel Springer.
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