Värde unveils $2bn Fund XIV, as uncertainty opens door to distress

Värde Partners, a long-time investor in credit and distressed markets, rolled out a 14th flagship offering targeted to bring in $2 billion.

Värde Fund XIV’s target, published in a report by Minnesota State Board of Investment, matches that of its predecessor. Fund XIII wrapped up in 2019 at nearly $2.5 billion.

Also like its predecessor, Fund XIV will invest in a range of credit and value-oriented opportunities, according to MSBI. These include credit origination, acquiring undervalued credit and credit-related assets, and traditional distress and restructuring.

New pockets of opportunity may open up for niche credit strategies as the market takes on more risk. For example, economic uncertainty spawned by inflation, rate hikes, supply-chain bottlenecks and Russia’s invasion of Ukraine could fuel dealflow for distress investors.

Businesses carrying heavy loads of post-pandemic debt might be of particular interest to distress investors. During the health crisis, many such companies were able to avoid the potential negative consequences of accumulating debt due to government stimulus programs.

“As stimulus is removed,” Värde said in a January newsletter, “and some of the disruptions from, and caused by, covid remain, broadly speaking we see upside in volumes from record lows of distress.” New leverage added in the past two years, coupled with inflation and the prospect of higher rates, “set up the possibility for cracks in the recent positive trajectory.”

Värde – which means “value” in Swedish – in 2020 closed a first dedicated dislocation and distressed fund to tap into pandemic-specific volatility. It raised $1.6 billion, above a $1 billion target.

The firm’s flagship vehicles invest more broadly, in line with a strategy of searching opportunistically for complex situations in less efficient markets where there is an imbalance in capital supply and demand. The scope of deal sourcing is global and across private and public markets.

Fund XIV’s pursuit of credit and value-oriented opportunities will be supported by four teams organized around Värde’s core investment segments, MSBI said. They are corporate and traded credit, financial services, real estate and mortgages, and real assets and infrastructure.

Värde was highly active in commercial real estate lending last year, financing $2.7 billion-plus in loans spanning hospitality, office, multifamily, industrial and mixed-use assets. This year, it formed a joint venture with Hawkins Way Capital to buy more than $1 billion of value-add and distressed hospitality and housing assets in US cities.

Recent deals include Värde’s late 2021 sale alongside other investors of GCX, a data communications service provider. The buyer, 3i Infrastructure, paid $512 million. Earlier, the firm and JC Flowers & Co sold non-bank lender Fairstone to Duo Bank of Canada, backed by Stephen Smith, Centerbridge Partners and Ontario Teachers’ Pension Plan.

Värde Fund XIII was earning a 1.3x net multiple and a 15.3 percent net IRR as of September 2021, MSBI said. Fund XII was earning a 1.2x net multiple and a 5.1 percent net IRR.

Värde was founded in 1993 by George Hicks, Greg McMillan and Marcia Page. Hicks, until very recently a co-CEO, is now an executive chair, as is Page. CIO Ilfryn Carstairs is today the sole CEO, sharing leadership with fellow CIOs Brad Bauer and Giuseppe Naglieri, president Jon Fox and deputy CEO Andy Lenk.

The firm employs more than 80 investment professionals, according to its website, operating from offices in Minneapolis, New York, London, Singapore and other cities in Asia and Europe.