Distressed Private Equity: Interest Continues to Increase
The analysts at Brighton House Associates have continued to see an increase in private equity investors interested in distressed funds. The analysts have noticed this upward trend since the beginning of the fourth quarter 2008. Well-known private equity firms have been fund-raising for distressed funds and investors are willing to provide them capital. In the first quarter, distressed became the third leading private equity strategy passing mezzanine.
In February 2009, 28 percent of investors’ private equity interest was focused on distressed debt. Of the private equity investors BHA analysts interviewed in March, 41 percent said they were actively looking to take advantage of distressed debt opportunities.
Private equity firms are looking for alternative investments, including buying companies’ debt trading at steep discounts since traditional leveraged buyout activity has come to a halt. Since distressed debt funds profit by buying companies’ undervalued assets, investors feel this is the best way to take advantage of the current depressed valuations. A wealth advisory firm in Iowa is only interested in distressed private equity. It believes that this is the best opportunity to exploit the market place.
As the market continues to be volatile and companies continue to sell their debt, look for more investors to buy that debt at a discount.