Limited partners have already committed to provide more than $15.8 billion of that total through mid-August. The upshot is that after seven and a half months, total fund commitments have exceeded the $9.1 billion raised in all of 2011 for distressed/turnaround firms, when 23 sponsors were in the market.
The surge in fundraising comes in an unusual economic environment. Although the last recession officially ended in June 2009, the current U.S. economic recovery has been the weakest since at least World War II. And while such conditions ordinarily would provide a surfeit of struggling companies for turnaround shops to choose among, the unprecedented low interest rates of recent years have given borrowers additional breathing room. Meanwhile, a crowded fundraising market is making it difficult for sponsors to raise the funds they seek.
The biggest fund in the market this year, Ares Corporate Opportunities Fund IV LP, reached a final close last month at its $4.7 billion hard cap, sister Web site peHUB reported, shortly after the deadline for our tabulation. The predecessor fund by Ares Management LLC raised $3.5 billion in 2008.
Another big turnaround investor, Oaktree Capital Group LLC, recently raised the target on its latest distressed debt fund, Oaktree Opportunities Fund IX LP, to $4.9 billion, almost double the size of its current Fund VIIb. The publicly traded firm originally had a $4 billion target for the new fund, but the higher amount, driven by investor demand, “reflects our expectation that the supply of attractive investments will trend upward as this fund comes online, currently expected to occur after 2012,” as Chairman Howard Marks told stock investors on an earnings call last month.
Popular categories for turnaround investors include retail and real estate-related companies, along with certain geographic regions.
Oaktree, for instance, has been wooing the troubled toy maker Jakks Pacific Inc. and Diamond Foods Inc., a processor of food products, while at least two firms currently in the market—Avenue Capital Group and Oak Hill Advisors LP—are raising funds specifically focused on Europe, while Ares is raising one targeting Asia.
Even historically successful turnaround investors have been stymied by challenging fundraising conditions. Wilbur Ross, who has a long record of investing successfully in out-of-favor industries, including steel making, auto building, coal mining and most recently financial services, closed his latest fund, WLR Recovery Fund V LP, at $2.2 billion, including LP capital, a separate account and committed coinvestments, Ross told peHUB after questions were raised about the success of its fund campaign.
Ross did not reply to a Buyouts request for comment.