Clearwater Reportedly Struggles to Reach $1B Target

The last time Buyouts wrote about Clearwater Capital was January of 2010, when the firm had just begun to raise money for its latest fund, Clearwater Capital Partners IV.

Its ambitious $1 billion target seemed reasonable back then, especially since Clearwater’s previous fund, Clearwater Partners III—which closed in 2007—raised $900 million, well above its original $500 million target.

Twenty months later, however, it seems Clearwater, which invests in Asian distressed debt and special situations outside Japan, is facing some blustery fundraising headwinds. As of this month, Fund IV has only been able to raise between $200 million and $300 million, according to press reports. An executive at the firm declined to discuss the firm’s fundraising efforts or verify figures. The firm’s placement agent, Greenhill & Co., also declined to comment.

The firm’s previous funds attracted an impressive array of backers. Investors in Fund III included the California Public Employees Retirement System, which pledged $150 million, and the New York State Common Retirement Fund, which committed $50 million. Other Fund III investors include the Australia Post Superannuation Scheme.

One reason that fundraising for Fund IV is going slowly could be the performance of Fund III. One LP investor, who declined to be named, said Fund III’s returns are “not bad, but not great.” Fund III, which started investing four and a half years ago, has posted a net IRR of 7.7 percent and produced a 1.3x return multiple, according to CalPERS’s performance data as of the end of 2010. The giant California pension had invested in each of Clearwater’s first three funds, but so far has not publicly committed to Fund IV.

Clearwater’s Asia focus has been consistently popular, especially since limited partners have sought more exposure to Asia and emerging markets generally. “Asia is not as inherently risky as it is perceived,” co-founder Robert Petty said in a recent interview with PE Asia, referring to the “dramatic widening of credit spreads across the full spectrum of Asian opportunities.”

Clearwater was formed in 2001 by Petty and Amit Gupta. The firm, which manages more than $2 billion in assets, has offices are in Hong Kong, New York, Beijing, Mumbai, Seoul and Singapore.