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Hedge fund Chatham targets up to $1 bln for distressed debt PE fund

  • Chatham can invest new fund across capital structure
  • Firm led by Melchiorre, formerly of Morgan Stanley
  • New Jersey weighing $200 mln commitment

Chatham Asset Management, a long-short hedge fund with roughly $3.2 billion under management, is raising as much as $1 billion for a private equity vehicle for debt-related investments,  a New Jersey Division of Investment memo shows.

New Jersey’s State Investment Council is weighing a commitment of up to $200 million to the fund at its Oct. 4 meeting. The commitment would be subject to a final negotiation of terms and conditions.

Chatham’s fund has a flexible investment strategy that allows the firm to invest across a company’s capital structure, including equity positions. The vehicle will target stressed or distressed situations, with plans to take positions in as many as 30 companies, according to a due-diligence memo prepared by New Jersey.

The state has an existing relationship with Chatham, which manages $300 million of New Jersey’s assets in a separate account formed in 2014. That account was netting an annualized return of 14.94 percent since its inception, according to the memo.

The firm is led by Founding Partner and Portfolio Manager Anthony Melchiorre, who launched the firm in 2003 after a stint at the helm of Morgan Stanley’s global high-yield trading desk.

Kevin O’Malley, also formerly of Morgan Stanley, is a partner and portfolio manager. The firm’s director of research is Partner Evan Ratner, who previously worked as a managing director at DLJ/Credit Suisse.

The headline terms for New Jersey appear LP-friendly. Should the state finalize its commitment, New Jersey would pay a 0.5 percentage point annual management fee on invested capital. Chatham would collect 15 percent of the fund’s returns as carried interest, but only after returning investor capital and achieving a 6 percent return.

Typical Chatham funds charge LPs a 1.5 percent management fee and 20 percent management fee, according to SEC filings. However, the firm reserves the right to reduce fees for family members or large strategic investors.

The firm will also invest at least $30 million in Chatham Private Debt and Strategic Capital Fund, according to the memo.

Chatham did not respond to a request for comment.

Action Item: To read Chatham’s Form ADV, visit: http://bit.ly/2xhMLEe

New Jersey State Investment Council Chairman Tom Byrne (center) at a meeting of the division. Photo courtesy of the agency.