North America- & Europe-Focused Distressed Debt Dry Powder Hits Record Highs in 2015 by Preqin
$54.7bn is available to fund managers for new investments in distressed debt in North America and Europe.
Preqin’s latest research finds that distressed debt fund managers focused on North America and Europe have record levels of capital available for investment. Fundraising for these regions remained steady in 2015, as 11 funds closed raising an aggregate $21bn, compared to the $20bn raised in 2014. However, dry powder levels increased by $9.1bn to hit $55bn at the end of 2015, the largest increase since 2010. By contrast, in 2007 and 2008 North America- and Europe-focused distressed debt funds raised $37bn and $48bn respectively, but dry powder levels fell from $40bn at the end of 2007 to $33bn at the end of 2009.
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This dry powder is concentrated among relatively few managers, as the distressed debt landscape is dominated by a small number of firms with proven track records. The ten fund managers which hold the most dry powder for the debt type account for 65% of the total capital available for investment in North America and Europe. All of the distressed debt funds currently on the road that focus on these regions are being marketed by firms which have raised at least one previous fund of this type.
Distressed Debt Dry Powder – Other Key Fundraising Facts:
- Funds Target North America: Of the 30 distressed debt funds currently in market globally, 21 are North America-focused funds seeking an aggregate $33.9bn, while 7 Europe-focused distressed debt funds are seeking a combined $8.9bn.
- Funds in Market: Distressed debt funds represent seven of the ten largest North America-focused private debt funds in market, and three of the ten largest Europe-focused funds.
- Biggest Fundraisers: The ten firms which have raised the most capital for distressed debt funds have secured a combined $148bn over the last 10 years, 64% of total North America- and Europe-focused distressed debt fundraising over that period.
- Global Fundraising: Distressed debt fundraising has remained consistent in the wake of the GFC, while the total capital raised by private debt has soared. As a result, while distressed debt funds accounted for 59% of aggregate private debt capital raised in 2010, in 2015 that proportion fell to 29%.
- Average Fund Size: The average size of North America- and Europe-focused distressed debt funds closed in 2015 was $1.95bn, compared to an average of $783mn for all private debt funds focused on the regions.
“Distressed debt funds experienced record fundraising years during the 2007-2008 Global Financial Crisis. However, fund managers were able to deploy this capital into investment opportunities quickly, so that dry powder levels actually fell across the period. In more recent years, although fundraising has been consistent, levels of unspent capital available to fund managers have been rising steadily, and stand at record levels as of the end of 2015.
Furthermore, the distressed debt landscape is dominated by the biggest firms, who hold the majority of dry powder at their disposal and are able to raise multi-billion dollar funds relatively quickly. Several funds from these managers are currently being marketed to investors and consequently 2016 looks set to be another strong year for distressed debt fundraising. This in turn may increase pressure on managers to make use of the capital at their disposal.”
Ryan Flanders – Head of Private Debt Products, Preqin