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Volatility sparked by President Trump’s tariff agenda will unleash a wave of distressed asset opportunities — and alternative asset managers will be looking to take advantage.
Schulte Roth & Zabel Partner, David Nissenbaum, says today’s private capital markets offers flexible fund structures for hedge funds that are better suited for distressed strategies compared to 15 years ago, when hedge funds lacked appropriate liquidity terms and private equity funds were too rigid.
Newer and increasingly used structures enable a better alignment of liquidity and manager incentives, including:
- Medium-term closed-end funds
- Evergreen funds
- Hedge funds
- Co-investment vehicles
- Programmatic platforms
- Continuation vehicles
“It has been over 15 years since there has been a robust “distressed investments” sector in private investment funds,” says Nissenbaum. “Back then, the private investment fund world was largely divided into open-end hedge funds (which had to provide liquidity to investors quarterly) and closed-end private equity funds (which were locked into their stated non-distressed equity investment strategies).
“Hedge funds had the flexible mandates to pursue distressed investments but the wrong liquidity terms to provide a stable capital base for the necessary investment duration. This became painfully evident when the Global Financial Crisis hit and side pockets and the suspension of investor redemption rights became common. Investors hated it (as did fund managers).
“Today, fortuitously, private capital operates in a very evolved market. There are many more fund structure options. And fund investors are much more flexible and open to being patient with their liquidity in order to access medium and long term opportunities.”