Does anyone have a Preqin (or similar) report covering the economics/terms of turnaround/distressed funds? Ideally LMM. I've found some out of date reports but nothing current-ish.
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Hi m_1, no, I never sleep and so I can respond to any lonely threads (like this one) at all hours of the night. Impressive, I know ;-)
More suggestions...
You're welcome.
Bump -- would also be very curious to see how economics play out in this cheque size
See comment below. If you want to share which preqin report you’re talking about (to clarify what you’re looking for), I may be able to point you to some more data, or at least summarize some market observations.
What specifically are you looking for? Many are set up in a hybrid of PE/HF structures, given the nature of investments (e.g., publicly traded debt that turns into a loan to own, PE-like investments in turnaround companies, esoteric CDS, etc.). Come to think of it, more common to see PE-type structures (with a series of vintage funds) than not, but they’ll have some tweaks that make them more suitable for things you may encounter in distressed investing, like more generous recycling provisions.
The more information the better. I have a pretty good idea of what is normal for emerging LMM vanilla managers but there isn’t any data around turnaround focused firms.
IE carry, fees, coinvest rights, etc.
Dude if you want me to join your upstart fund, just lmk. Sounds like you're trying to make a Stellex 2.0, but more software focused?Not sure about your experience but you may need to do a few IS/pledge fund deals off the bat to get some "akshually" attributable track record. From there on out, 2-2.5% / 20% will be marketable - higher management fee to keep the lights on, but probably also greater (close to 100%?) offset against carry. Co-invest rights will be a must with many LPs, but keep in mind that many will not take you up on it (except those who are co-investing purely for fee reasons). You can also set some guardrails around what you'd have to offer. Even the most sophisticated co-investors may not want to do weird debt stuff.In short, if you’re doing lmm turnarounds that are structured like vanilla lmm investments, you’ll probably have vanilla lmm terms. If you need more flexibility to do stuff - like foothold positions in debt, or more esoteric instruments - you should at the very least push for generous recycling. Something to watch out for — if you start to quack too much like a distressed HF, you’ll be bucketed into HF baskets by LPs, which has its own terms and fees dynamics. More fee pressure, different valuation requirements, liquidity, SMAs. None of those would be super fun if you want to do more lmm pe-type work.
EDIT: can’t paragraph on mobile?
Makes sense. We are an established LMM IS for dtc/e-commerce. Aiming to raise a fund next year or so, not 100% yet. I really love doing some of the esoteric deals and am primarily concerned LPs would want us to stick to too strict a mandate, which kind of breaks our ability to deliver great IRR. Current LPs are very flexible and I love it.
Are you in a place with your legal advisors where you can ask their fund formation group for ideas/market terms? I know (too well) that upstart funds don’t immediately shell out for big law, but perhaps some old contacts from your collective prior lives would be willing to chat. I suspect even the top firms wouldn’t mind starting the convo if you’re raising in the ~100m range for your debut fund, it’d probably generate enough fees for them to have an associate fill an LPA template with the hopes of you “growing into” their services.
The flip side is that that’d probably be more expensive. But if you’re doing weird/fun stuff in your fund, I assume you’re on a first-name basis with some good lawyers.
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