Once burnt, twice shy, goes an old adage. Bad experience with distressed credit investments – considered very promising at the start of the real estate downturn – has put fund clients off this strategy.
One of the prominent credit managers who ran into trouble, Max Holmes, is a highly regarded expert in the field and was expected to do well. Yet his firm, Plainfield, made significant losses and customers were not allowed to redeem when they wanted to. Plainfield continues to liquidate its funds, a process that’s been going for some time.
Some institutional investors ended up waiting years for the Plainfield assets to be sold so that they can get their money back. They have been less than interested in other distressed credit funds. “This gave the strategy a bad name,” says one.
Others counter that distressed debt investing will come back after the cycle turns. For now, though, its share of industry assets appears to be at a low point.
Tags: Institutional Investors
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