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There are signs that investors are gathering more capital for distressed debt investing, yet distressed investment seems to be lagging, even as the primary high yield market booms. Observers note that macroeconomic fears may be keeping investors away as defaults and bankruptcies are expected to spike.
The California Public Employees Retirement System (CalPERS), which manages $169 billion in assets, could dedicate as much as 3% of its total assets, or approximately $5 billion, to distressed debt. This would include "toxic" mortgage-backed securities and securities issued under the U.S. government's Term Asset-backed Securities Lending Facility (TALF), as well as U.S. corporate high yield bonds and leveraged loans. A CalPERS investment policy subcommittee could approve a distressed investing program today, which would clear the way for consideration at an Aug. 17 meeting of the fund's investment board.
CalPERS would be following the lead of private investors such as Oaktree Capital Management. Oaktree, which raised more than $14 billion in two distressed debt funds two years ago, is in the market to raise another fund, according to Dow Jones New Service. The firm is reportedly targeting between $4 billion and $6 billion for the new fund.
At the same time, distressed investing may begin to look more inviting, according to some of the latest performance data. U.S. distressed debt funds have seen...