MatlinPatterson Raises Fund III—And A Hedge Fund

Firm: MatlinPatterson Global Advisors

Fund: MatlinPatterson Global Opportunities Partners III LP

Hard Cap: $4.5 billion

Strategy: Turnaround

Prior LPs: Canada Pension Plan’s Investment Board, Pennsylvania State Employees’ Retirement System, University of Texas Investment Management Co

As the asset class balloons, some buyout firms are raising new funds to continue their traditional operations, while simultaneously expanding their mandates with new investment strategies. Among this breed is distressed investor MatlinPatterson Global Advisors, which, according to a source, is in the process of raising its third turnaround fund, in addition to expanding its investment breadth by raising its inaugural hedge fund.

According to our source, the New York firm is marketing its turnaround fund, MatlinPatterson Global Opportunities Partners III LP, with a $4.5 billion hard cap. The firm’s second turnaround fund closed with $1.66 billion in dry powder in 2003, while its inaugural vehicle took in $2.2 billion in 2001. The Pennsylvania State Employees’ Retirement System holds a position in both previous funds. Others MatlinPatterson limited partners have included the Canada Pension Plan and University of Texas Investment Management Co. We were unable to reach the firm for comment.

Meantime, MatlinPatterson has joined a number of other buyout firms—among them The Blackstone Group and The Carlyle Group—in raising hedge funds. Earlier this year MatlinPatterson began raising MatlinPatterson Distressed Opportunities Fund, which, according to HedgeWorld, is earmarked for non-control investments in troubled companies. Typical stakes to be acquired by the fund will be less than 10 percent.

The fund, which has a traditional two-and-twenty fee structure, was reportedly launched in January with an $85 million initial investment from friends and family, and has since been targeting institutional investors. No target has been publicly announced.

MatlinPatterson, which is a 2001 spin-out of what was then called Credit Suisse First Boston, is perhaps best known for its 2002 investment in bankrupt, scandal-ridden WorldCom. MatlinPatterson played a role in the McLean, Va.-based company’s restructuring through which the company was able to emerge from bankruptcy in April 2004. The re-named MCI emerged with about $6 billion in debt, down from the $41 billion it had when it filed in 2002.

More recent deals include the firm’s agreement earlier this month for its portfolio company Global Aero Logistics (which owns ATA Airlines) to acquire World Air Holdings Inc. for $315 million.—A.N.