Wisconsin seeks distressed debt, restructuring funds with multiples near historic peaks

State of Wisconsin Retirement Board is looking for opportunities to commit to restructuring or distressed-for-control funds, according to its June 12-13 meeting materials.

The board, which manages the state public-pension fund’s $109 billion investment portfolio, noted that private equity purchase prices are hovering around historically high levels. Equity’s share of the average PE deal is also much higher than it was in 2007 and 2008, board materials say.

PE firms specializing in distressed debt and restructuring are most active when the economy skids and credit markets tighten.

“[It’s] hard to know when it’s going to happen,” Cambridge Associates Head of Private Investments Andrea Auerbach said at SuperReturn US West earlier this year. “You can always identify the trigger in hindsight. … We’ve been waiting for a reset for some time now.”

Oaktree Capital Group, which is among the largest firms active in distressed-debt markets, noted that its investment activity was consistent but “muted” in Q1.

“Even though volatility picked up in the first quarter, it wasn’t enough to shake loose many public-market opportunities for us,” CEO Jay Wintrob said during a Q1 earnings call.

“Nonetheless, we continue to believe that we’re inching closer to the time when the supply of attractive distressed debt will expand.”

Wisconsin previously reported it had significant uncalled capital in distressed-debt and restructuring funds at its February meeting earlier this year.

In 2017, Wisconsin backed Sterling Group’s credit fund for $50 million. That vehicle specializes in providing junior debt to PE-backed companies operating in the middle market.

The retirement system also committed $100 million to Glendon Capital Management’s $2.5 billion distressed-debt fund.

In addition to opportunistically exploring investments in distressed debt, Wisconsin continues to steadily bulk up its exposure to small and mid-market private equity firms, its meeting materials say.

The retirement system is also still pursuing co-investments as well, with plans to hire additional personnel to focus exclusively on them.

Wisconsin held $8.4 billion of its assets in PE and debt funds as of March 31. The portfolio netted a 10-year annualized return of 9 percent since inception.

The retirement system did not respond to requests for comment.

Action Item: State of Wisconsin Investment Board: www.swib.state.wi.us