CarVal to close $5B distressed fund

If an economic downturn comes, one of the largest distressed investors will be ready.

CarVal Investors, a Minneapolis-based investment arm of conglomerate Cargill Inc., is preparing to close on more than $5 billion for its first distressed investment fund as it accepts capital from outside investors, according to two people familiar with the fund.

Cargill intends to invest about 40% of the fund, leaving about $3 billion to be raised from outside investors. The vehicle is on pace to close by the end of February, according to a limited partner. A CarVal spokeswoman declined comment.

The fund is a hybrid private equity and hedge fund to accommodate investors from both realms, with about two thirds of it structured as a private equity fund, said one person familiar with the fund, who is not an LP.

Since its founding in 1987, CarVal’s assets under management have grown to about $10 billion. The firm invests in loan portfolios, real estate, corporate securities and special opportunities. Its loan portfolios include investments in commercial and industrial projects, consumer and health care receivables, and residential mortgages. Its real estate practice recently purchased Tampa, Fla.-based office building Tampa City Center, while its corporate securities branch has invested in Delta Air Lines’ bonds. Its special opportunities unit has bought such varying assets as music catalogs and oil and gas rights.

The placement agent on CarVal’s distressed investment fund is New York-based Park Hill, which last year also raised money for Centerbridge Capital Partners, a buyout and distressed fund founded by Mark Gallogly, former head of private equity for The Blackstone Group.

Cargill, known as a food and gricultural processing giant, has long been a commodities trader. CarVal grew out of a high-yield trading operations during the financial crisis of the early 1990s. —Mark Cecil