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Hedge fund Davidson Kempner targets $1.2 bln for private credit

  • To invest in distressed debt, RE, hard assets, structured credit
  • New fund received $50 mln from Rhode Island
  • LPs who backed first close get discounted management fee

Hedge fund Davidson Kempner Capital Management is targeting $1.2 billion for investments in longer-dated distressed opportunities, including private equity, according to documents released by Rhode Island State Investment Commission.

Davidson Kempner, which holds the bulk of its assets in its $20.7 billion flagship hedge fund, plans to use the new $1.2 billion fund to invest in 15 to 30 “higher risk/reward situations,” according to a memo prepared by Rhode Island’s consultant, Cliffwater LLC. Those could include distressed corporate debt, real estate, hard assets and structured credit in the U.S. and Europe.  

“Many of these opportunities are expected to be in less liquid and/or longer-duration situations that will require an extended time horizon to fully realize value,” according to the firm’s presentation materials, which were included in Rhode Island meeting materials. “As banks continue to deleverage, credit for marginal borrowers, which require a higher capital charge, may be at risk of not being renewed, forcing borrowers to look for alternative sources of funding.”

The Rhode Island commission at its Aug. 23 meeting approved a $50 million commitment to Davidson Kempner Long Term Distressed Opportunity Fund IV.

As of April 1, the firm’s first three Long Term Distressed Opportunity Funds were netting internal rates of return in excess of 13.5 percent, roughly in line with the mid-teens IRR the firm is seeking with Fund IV, according to presentation materials and the Cliffwater memo.

The fund’s team is led by Anthony Yoseloff, Avram Friedman and Conor Bastable, Fund IV presentation materials show. The firm’s top executive, Thomas Kempner, and its chief risk officer also sit on the fund’s investment committee.

LPs in the fund will be charged a 1.5 percent annual management fee on committed capital during its three-year investment period, or until Davidson Kempner raises a successor fund. Afterward, LP management fees fall to 1.5 percent of contributed capital still invested in portfolio assets.

LPs who participated in the fund’s first close, which had been scheduled for August, received a 0.5 percentage point discount on their management fee.

The firm could not be reached for comment.

Davidson Kempner is based in New York with offices in London and Hong Kong. The firm has $27.5 billion under management.

Action Item: For more information about Davidson Kempner: davidsonkempner.com/

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