CHICAGO (HedgeWorld.com)--The target date is Aug. 1 for Deerfield Capital Management's distressed debt offering, which will mainly consist of syndicated bank loans and corporate bonds.
DCM Special Opportunities Fund I Ltd. and DCM Special Opportunities Fund II LLC will be non-U.S. and U.S. fund structures, respectively, for the strategy. The firm is now working with two European funds of funds with a goal of having US$50 million in initial seed capital.
The current distressed debt environment has piqued many investors' interests and fears as WorldCom teeters on the verge of bankruptcy. "We are starting today and we have an open basket full of opportunities," said John Brinckerhoff, director of marketing for Deerfield.
Officials plan to limit the size of the fund to between US$100 million and US$150 million and hope to take advantage of the opportunities other larger funds may miss. But one thing you can't account for is fraud, said Aaron Peck, portfolio manager of the new fund.
So risk management is the goal in that Mr. Peck's distressed investment team hopes to get a real feel if a company is a good investment from looking at unlevered cash flow and other indicators. Portfolio concentration will be specific to the risk inherent to the investment, but would not exceed 10% of the portfolio.
"WorldCom would have been something we would have been careful on in terms of concentration," Mr. Peck said.
Mr. Peck recently joined Deerfield from Black Diamond Capital Management where he was a senior analyst for more than US$1 billion portfolio of distressed and high-yield fixed-income instruments. The other team members are portfolio managers and credit analysts who are members of Deerfield's corporate bond, fixed-income and asset-backed teams. The distressed investment group reports to Jonathan Trutter, Deerfield's chief investment officer.
Most of the firm's US$5.5 billion in assets are in collateralized bond obligations and in separately managed accounts. A total of US$500 million is in a fixed-income relative value hedge fund.
With the new strategy, Deerfield officials are marketing to the institutional investors such as pension funds and insurance companies that already make up its current client base. The investment minimum for the new onshore and offshore funds will be US$1 million. The fees for both will be 1.5% and 20%.