Clearwater gets $575m for fund IV

"There is no doubt today that the two dominant economies in Asia - China and India - are facing stressed credit markets," he says. "Various sectors in China are under stress, from select property businesses to infrastructure to traditional manufacturing."

Both countries will be a key focus for Clearwater's fourth Asia fund, which closed last month at $575 million. Having attracted $900 million for the previous vehicle in 2007, the target for fund IV was approximately $750 million, but the wider fundraising environment is challenging. There was substantial support from existing investors - the LP base is still dominated by North American institutions - but many chose to commit less than they did to the prior fund. Greenhill served as placement agent.

It is important to see Clearwater in the context of its strategy. As credit instruments are the principal focus within the investment portfolio, passive cash realizations are generated in the form of interest and principal repayments. The proceeds are re-invested so the GP ends up recycling its capital at least twice during the investment period.

Clearwater Capital Partners Fund III is invested in 50-75 different companies, with the top 25 investments accounting for more than 65% of the total fund. The private equity firm has already deployed about 40% of the newly raised vehicle, making investments in 11 specific situations across six major sectors.

Clearwater's transactions typically fall into three areas. First, stressed credit, which refers to companies that are suffering from a credit squeeze, but they have the ability to survive under the current capital structure. Second, direct lending, which involves extending loans to companies that are underserved by the local banks and other loan providers. Third, restructuring situations, where the capital structure requires a complete reworking.

These opportunities are present to varying degrees in all the Asian markets in which the private equity firm operates, but the approaches to onshore financing in China and India differ. In China, Clearwater works in partnership with a leading local financial institution, whereas in India, the operations are run through an independent non-banking financial company.

In both cases, however, the mid-market is the focus and companies that might struggle to obtain consistent bank financing. "The opportunities we see in China involve direct lending to small- and medium-sized enterprises because these are the companies driving economic growth," Petty adds.

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• Topics
• Fundraising
• Credit/Special Situations
• Clearwater Capital Partners
• Distress
• Fundraising