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Amid covid fallout, SVP targets $4bn for fifth special situations fund

Many LPs are looking for opportunities to profit from the market dislocations wrought by the covid crisis, and SVP's track record is appealing.

Strategic Value Partners is raising a $4 billion special situations fund to leverage the opportunity set stemming from the coronavirus market dislocation, according to pension documents.

New Jersey Division of Investment staff said Wednesday that the coronavirus pandemic has been a catalyst for dislocations in various sectors, leading them to look for partners in the distressed space, and settled on SVP as the best option.

“What we were really looking for was somebody that lived through the cycles before and had demonstrated ability to generate good but also consistent and repeatable top quartile returns,” said analyst Jessie Choi. “We view this as very timely and beneficial to the pension fund.”

Strategic Value Special Situations Fund V will invest in “distressed, stressed and deep-value opportunities” in mid-market companies with a total enterprise value of less than $1.5 billion, with a focus on companies in North American and Europe.

New Jersey staff said the fund will target low-teen returns, and look to take either “controlling or highly influential” stakes through different parts of the capital structure, including taking full control of equity following restructurings. It will make investments of between $10 million and $150 million. The firm focuses on “asset-heavy, old-economy businesses,” according to a New Jersey memo.

All the previous funds in the series have shown strong returns. As of December 31, 2020, Fund I, a 2008 vintage, had a 15.9 percent net internal rate of return and a 1.8x net total value to paid-in multiple. Fund II, a 2010 vintage, had a 14 percent net IRR and a 1.9x net TVPI. Fund III, a 2013 vintage, also had a 14 percent net IRR and a 1.9x net TVPI. Fund IV, a 2017 vintage, a 24 percent net IRR and a 1.3x net TVPI.

SVP was founded in 2001, and launched its special situations fund series in 2008. Its leadership includes founder and chief investment officer Victor Khosla, global head of sourcing Kevin Lydon, and managing directors HJ Woltery, John Brant and David Greenberg.

New Jersey committed $125 million to the fund.

Through a spokesperson, SVP declined to comment for this story.

Action Item: read SVP’s for ADV here.