Avenue Capital explores revamp of a special-situations fund

  • Europe Special Situations Fund II closed on $2.8 bln
  • Deal enables LPs to cash out or roll into new vehicle
  • One of several high-profile GPs exploring secondaries

Avenue Capital is working on a process to deliver liquidity to investors in its second European special situations fund, which closed on $2.8 billion in 2012.

The deal, which is not finalized, is another example of a high-profile manager exploring options on the secondary market for older funds.

Avenue is working with Park Hill Group on the process, sources told Buyouts.

The deal, valued around €300 million to €400 million ($341 million to $455 million), would enable existing investors to cash out or roll their interests into a new vehicle created to house remaining assets, sources said. The price at which LPs would be able to sell their stakes is unclear.

A spokesman for Avenue declined comment.

The deal is meant to give Avenue more time to sell the assets in the fund, a secondary-market source said. New funds created in restructurings usually come with reset terms in the range of three to five years.

Avenue Europe Special Situations Fund II was generating a 7.8 percent net internal rate of return as of Sept. 30, 2018, performance data from Fort Worth Employees’ Retirement Fund showed.

Avenue’s special-situations strategy invests primarily through senior debt, though it can also target more subordinated debt and even equity, an investment memo from Pennsylvania Public School Employees’ Retirement System says.

The memo was part of a recommendation for the system to commit to Avenue’s third Europe special-situations fund, which raised about $2 billion, Reuters reported in 2016.

Avenue’s Europe team is led by Avenue Founders Marc Lasry and Sonia Gardner, along with Chief Investment Officer Richard Furst, and Jon Ford, senior portfolio manager, the investment memo said. Furst and Ford are co-heads of Europe strategy.

Other managers that have explored secondary options include Providence Equity, TPG and Warburg PincusSources expect more high-profile managers to use the secondary market to provide options for existing investors in older funds.

Update: This report was updated to include more recent return information for Avenue Europe Special Situations Fund II.

Action Item: Check out Avenue’s Form ADV here: https://bit.ly/2C8CueG