Avenue Capital raises $450m for Asia special situations fund

The private equity firm famously raised $3.1 billion for its fourth Asia fund in 2006 – up from $628 million for the previous vintage – on the back of an expected surge in investment opportunities in the region. Notably, Avenue wanted to deploy $1 billion in China alone by participating in auctions for portfolios of secured non-performing loans (NPLs) and built up a sizeable local team.

It was one of the largest funds raised for Asia at the time, with the likes of California Public Employees’ Retirement System (CalPERS) and Pennsylvania Public School Employees’ Retirement System (PSERS) making sizeable commitments. However, Avenue ultimately struggled to deploy the capital and fund performance suffered.

Over the coming years, numerous investors examined the Avenue Asia Special Situations Fund IV portfolio with a view to doing a secondary deal. This is what brought Marc Lasry, the firm’s founder, into contact with Anil Gorthy, a member of the special situations team at PAG and previously part of Deutsche Bank’s distressed products group. Lasry proposed that Gorthy lead a revitalization of the Avenue Asia franchise.

His first task on joining in 2014 was to dispose of the sizeable portion of Fund IV that remained. This was achieved within three years. CalPERS data show that, as of December 2017, the fund was almost fully realized and had delivered a multiple of 1.1x. Some investors had earlier resigned themselves to not recovering their principal, according to a source familiar with the situation.

Fund V launched in early 2017 with a target of $300 million. The vehicle was oversubscribed – several Fund IV investors re-upped – prompting an increase in the hard cap from $400 to $450 million. The LP base includes pension fund advisors representing discretionary and non-discretionary capital, asset managers, and endowments and foundations.

The team of approximately seven, primarily located in Hong Kong but with a local presence in most major markets, focuses on senior secured distressed debt and single-credit special situations across the region. It has already made investments in Australia, Indonesia, India, and China.

Speaking at the Hong Kong Venture Capital & Private Equity Association’s Asia Forum earlier this year, Gorthy identified India as a particularly exciting investment destination, given creditor-friendly measures implemented by the government in recent years such as the reform of the bankruptcy code. 

He also noted that the greatest challenge to successfully investing in credit is creating a proper strategy. Investors must be confident in their ability to exit an investment from the moment they first commit.

“The difference between this strategy and every other strategy in private equity is that the time frames are much shorter,” Gorthy said. “Credit is one asset where the longer you hold it, it doesn't necessarily get better, because credit has cycles, and if one breaks, you could find yourself holding a lemon. So a focus on exits is probably one of the most important things that drives the strategy.”

Avenue is headquartered in New York and has $10 billion in assets under management globally.

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• Topics
• Fundraising
• Credit/Special Situations
• GPs
• Asia
• Avenue Capital Group
• Distress