Glendon Capital Management is gearing up to launch fundraising on its third distressed-focused pool in the first quarter, even as distressed opportunities remain muted, sources told Buyouts.
Glendon Opportunities Fund III will likely target somewhere around $3 billion, sources said. Park Hill Group is working as placement agent on the fundraising. A spokesperson for Glendon declined to comment.
Fund III, like other Glendon funds, will have a delayed-draw, meaning it will have three years to activate based on market conditions. Once activated, the fund will have general private market funds structure and fee arrangements, according to one of the sources.
Glendon charges fees only on invested capital. In past funds, Glendon didn’t collect any carried interest until all capital is returned to LPs plus an 8 percent preferred return.
The delayed-draw period “offers the fund and its investors the ability to be patient and well-positioned to deploy capital at optimal points in the next credit cycle,” according to an investment memo from New Jersey Division of Investment about Glendon’s second fund. Glendon closed Fund II on $2.5 billion in 2017.
Glendon invests in bank loans, corporate bonds, municipal debt, sovereign debt, asset-backed securities and equity securities related to debt restructurings and special situations, according to Glendon’s Form ADV.
Past investments include American International Group, Lear Corp, Prologis and C&J Energy Services.
Glendon was formed in 2013 by Barclays’s head of distressed debt and special situations, Matthew Barrett, and former managing directors Holly Kim, Brian Berman and Eitan Melamed. Another partner, Michael Keegan, joined in May 2016, according to Glendon’s Form ADV.
Barrett, Kim and Berman worked at Barclays from 2006 to 2013, according to regulatory filings by Glendon. Earlier, they had worked at Oaktree Capital Management. Melamed joined in 2007 from Goldman Sachs.
With a mandate to invest in distressed credit and special situations at Barclays, the team tapped $1.5 billion from the bank’s balance sheet. That figure was later increased to $2 billion.
By the time of the spinout in April 2013, Glendon agreed to wind down the Barclays assets, which totaled about $700 million as of May 2014, a source previously told Buyouts.
While distress has roiled the markets as a result of the pandemic, with supply chain delays and rising prices, government stimulus has prevented wide-spread business failures like what happened in the global financial crisis in 2008. Add to this a prolonged bull market fueled by low interest rates, and the environment for distressed investing has been muted.
Because of this, it’s been harder for many distressed-focused firms to find deals, and they have taken longer than expected to deploy capital.
Last year, distress-focused funds raised about $10.7 billion across 10 funds, according to PEI data. That was down from $13.6 billion in 2019, and the peak of $29.7 billion in 2018, PEI data said. This year, through the third quarter, six funds have raised about $4 billion, the data said.