Distressed Debt Specialist Wayzata Closes Fund III At $2.7B

Based on the performance of Wayzata’s 2008-vintage Fund II, it’s easy to see why the firm’s newest fund exceeded its target. According to September 2012 return data from the California Public Employees’ Retirement System, Fund II returned a net IRR of 15 percent and a net return multiple of 2.9x. That fund secured $3.4 billion in commitments.  

“While we topped our fundraising target, we were careful not to stretch the organization and (we) attempted to fit the fund size to the current and foreseeable market opportunity,” said Patrick Halloran, Wayzata’s managing partner, in a statement. 

Wayzata focuses on distress-for-control by making investments in undervalued debt and equity. In 2009, Wayzata bought Caraustar, an Austell, Georgia-based company that makes products from recycled paper, out of bankruptcy and rehabilitated it. This May, the firm sold off Caraustar Industries to H.I.G. Capital, a Miami-based private equity firm, for an undisclosed amount.

For Fund III, the list of limited partners is a Who’s Who of major public pensions. Investors include the Texas Teachers’ Retirement System, the Florida State Board of Administration, the Massachusetts Pension Reserves Investment Management Board and the Minnesota State Board of Investment, each of which pledged $150 million; the Los Angeles County Employees’ Retirement Association, which committed $100 million, the State of Wisconsin Investment Board and the Texas County & District Retirement System, which both committed $75 million, the Kentucky Retirement System, which committed $50 million, the New Mexico Public Employees Retirement Association, which committed $35 million and the Nebraska Investment Council, which committed $25 million.

CalPERS, which committed $250 million to Wayzata’s previous fund, decided not to re-up with Fund III, according to a source familiar with the firm. The giant pension asked Wayzata for a fee discount that the firm declined to provide. The firm wanted all of its LPs to participate on the same terms, according to the source.

So far, the source said, Fund III is less than 10 percent invested. On its website, Wayzata said that the firm benefits from the fact that “most partners have worked together for 15 years or more.”

Minnesota-based Wayzata was founded in 2004 after spinning off from Cargill Inc., the giant agribusiness company. Wayzata also has offices in Boston, Houston, London, Mumbai and Singapore. It has more than $7 billion in assets under management.