Differences between Special Situations Funds
Could someone please the differences between different styles of special situations funds??? They seem to be both PE and HF special situations funds? Whats the difference in what they do? Also there seems to be long only equity spec sits, credit spec. sits, ......
Also whats the link to distressed debt?
Hi LaNoob, any of these discussions helpful:
No promises, but thought I'd mention a few relevant users that work in the industry: xgzs thewaterpiper macro bruin
Hope that helps.
The distinction on the credit side is the following: Distressed generally refers to on the run, publicly traded securities or providing rescue/exit financing to companies that have publicly traded securities (or if not, at least investing in some sort of security/claim that is purchased on the secondary market). Special situations is more oriented toward the latter part of my distressed definition, in addition to directly providing various forms of private capital to companies that cannot access the syndicated market for one reason or another. Maybe they have a sponsor, maybe they recently filed, etc. This could take the form of first lien, other secured, mezz, have PIK elements, warrants, pref, common, you name it. Often those companies are also having financial difficulties, hence why they go down that path to raise money. These definitions are by no means mutually exclusive and really there is typically large overlap. Many Distressed and Special Situations funds will have similar return targets (e.g. ~15-17% IRR, 1.5x+ MoM). If they target higher/lower in the cap structure vs. what I describe, it will be more/less, respectively. You shouldn’t think of the categories as different - most funds do both.
When you think about the distinction between HFs and PE, the big distressed HFs all do what I have described, while PE will be more specifically oriented toward gaining control through equity. In addition, the HF vs. PE distinction can often simply refer to lockups and fund structure (I.e. introducing carry and 5-8 year lockup periods).
My understanding of equity special situations is more oriented towards the Greenblatt book, referring to various corporate actions that can result in mispriced securities.
Fantastic
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