Special Situations Groups
Can somebody explain on a high level what special situations groups do? Who are the big players in the space?
Any helpful links to learning more would be great as well
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Oaktree is distressed, Cerberus is more PE/Distressed PE. Tac Opps is different.
How so?
Cerberus has a HF, Turnaround, and Distressed product.
How does 6th street or Apollo fit into this?
Bump
Happy to share my thoughts as an investor in the special situations space at a prominent fund investing across asset classes. Would describe the disposition towards characterizing special situations as distressed investing as incorrect. Special situations typically involves event driven situations which can sometimes mean deep value distressed, but would think of it more as opportunistic. Special situations spans growth capital in venture / growth equity like businesses, deep value distressed, opportunistic event driven financing (merger, major catalyst that drives valuation, etc.), NPL purchases, complex secondaries investments both on single asset and pools of assets, NAV lending, portfolio purchases, IP/royalties investing, structured capital, litigation finance, opportunistic asset purchases, etc.
Simply put, special situations denotes a highly flexible mandate in which investment professionals are evaluating transactions that span various asset classes and structures, typically relating to esoteric investments in bespoke structures. Another aspect of special situations many don’t understand is special sits includes buyouts, as opportunistic asset purchases are a component of any special sits strategy. The key distinction is that special sits investors are value investors vs. your typical PE firm and won’t be buying a business for 12x, but rather would buy the debt at $0.60, foreclose on the asset, and create a business at 4x.
Awesome! So helpful. Who would you say are the best in the special sits space? And why do Oaktrees returns always suck?
Here is what comes to mind:
Morgan Stanley Tactical Value
Goldman Sachs - West Street Strategic Solutions
Ares Special Opportunities
Blackstone Tactical Opportunities
Apollo Hybrid Value
KKR Dislocation Opportunities Fund
Carlyle Strategic Partners
Carlyle Tactical Private Credit Fund
I would personally think of Cerberus and Oaktree as primarily distressed mandates, with occasional special sits deals making it into their portfolios.
Don't forget PIMCO's alt credit/special sits team which has over $100B in AUM. They've been utilizing their fixed-income powerhouse platform to fuel their alts division during these times of low yield.
How familiar are you with the group? You know what comp looks like at associate level?
This 100bn allocation includes all alts including real estate, private credit, and private equity.
Special Sits capital is nowhere near 100bn. Still formidable that can do cool deals but nowhere close to that size range. Probably would track their DISCO pockets as closer to true special sits AuM.
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Disregard my title but I work for a special situations investment fund (multi bn funds) that plays in 95% of cases away from distressed (situations where we looked at distressed was 1) to fix a broken balance sheet or 2) to buy a business out of bankruptcy). Broken balance sheet, misunderstood businesses, complex carve outs, businesses with lack of trackrecord, complex M&A financing are our core investment themes. We have locked up funds/evergreen funds to deploy patient capital across the capital structure. We aim at doing teens returns across the cycle and we broadly have 1) more guaranteed returns - so less exit/valuation/beta risk, 2) better downside protection vs. a secondaries or a PE fund by often not being a common equity holder. That is a very attractive offering for allocators when they think about managing their portfolios.
So you work at a fund that focuses on identifying distressed companies that really do have value and just needed the capital infusion/restructuring and/or a turnaround of the target? And then when you say "less exit/valuation/beta risk", you're exit multiple is nothing special, but it's the discount you bought the company for and the turnaround of the company's operations to make it healthy again that yields the most value upon exit?
Ya, that's a distressed investing fund.
No core of what we do is away from that and in the performing space. large part of what we do is Growth Capital (roll-outs), Complex M&A financing Sr Debt, Junior or Pref (carve outs, minnow whale M&A), financing royalties or misunderstood streams of cashflows (i.e. music as per the conversation above). Maybe 5-10% of our portfolios comes from underperforming businesses that we refinanced that you want to bucket into Distressed.
in all of these cases you can be in an attractive place in the capital structure but not the one taking the equity risk (even if say equity was worthless than the Unsecured guys would hold equity like risk) where we don’t care what valuation/multiple is for our return.
Hi,
Late comment but when you say "broken balance sheet" do you mean suboptimal capitalization structure / liquidity issues etc / overleveraged and you're going to buy the debt pieces to take over it
Or more like hairy problems that normal GPs don't want to wade it and fix
Aware that both scenarios can be true at the same time
Either or both.
As someone who works in both Special Situations M&A and Distressed Debt Principal Investing (within a hybrid role at a boutique), I will also reiterate some of the comments above that these two terms are not synonymous. Let's also not confuse big name shops like Oaktree Capital to be a "distressed investing fund". While they do have separate funds dedicated to covering distressed investing opportunities, they have many other funds focused on entirely different strategies.
That sounds super cool. Would you mind sharing what shop you're at? Thanks
You can DM me.
What types of firms have these hybrid roles?
What types of firms have these hybrid roles?
There are a handful of funds that have as flexible and expansive as a mandate that enable them to invest across asset classes, capital structure, and inherent risk profile. These funds typically target mid to high teens returns, oftentimes synonymous with traditional private equity returns if high teens and above.
Sixth Street
Vardë
GS SSG
Castlelake
Atalaya
Fortress
Wafra
BX Tac Opps
Monroe Opportunistic
Golub Capital Credit Opps
Origami Capital
MHR Fund Management
Monarch
Beach Point
Angelo Gordon
Victory Park
What types of firms have these roles?
Special situations is a catch all. It initially was a fancy way to say distressed, but can mean anything and have a broad mandate.
You need to diligence whatever group you’re interviewing at to understand what exactly they do.
Versus traditional private equity where you may take a minority or majority stake in a company and take an active operational/strategic role - how passive is SS in comparison and how would this compare to 'turnaround' kind of like Sun Capital?
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Would you consider Fortress as a special sits shop? Their credit vehicles seem to do a lot of different things including rescue financing, loan to own, etc.
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