NY Teachers’ eyes European distressed debt

As the sovereign debt crisis creeps its way across Europe, Oaktree’s European Principal Fund III has picked up another $100m for distressed-for-control deals.

The New York State Teachers’ Retirement System has committed €100 million to Oaktree Capital Mangement’s European Principal Fund III, which is targeting €2.5 billion to €3 billion for distressed debt investments in Europe.

The $76 billion pension system also authorised the addition of a new asset class, global bonds, and a rebalancing of its asset allocations. The target allocation to private equity was not affected by the adjustment.

Oaktree European Principal Fund III, which began marketing in 2010, will make equity and debt investments in undervalued European mid-market companies suffering from financial distress, dislocation, owners who are forced to sell or similar situations, according to documents from the San Diego County Employees’ Retirement Association. Oaktree’s third European Principal Fund will seek control position allowing it significant influence over restructurings.

The Los Angeles-headquartered firm raised its second $1.8 billion European Principal Fund in 2007, which has netted a 15 percent net internal rate of return and a 1.3x multiple, according to San Diego County. Oaktree's European Principal team is led by Caleb Kramer and managing directors Karim Khairallah, Oren Peleg and Justin Bickle.

Fund III has already received commitments from SDCERA, the Metropolitan Government of Nashville and Davidson County Employees' Benefit Trust Fund, the Public Employees Retirement Association of New Mexico, the Teachers' Retirement System of the State of Illinois, the Texas County & District Retirement System and the University of California.

A number of firms with distressed investment strategies are expected to capitalise on any fallout from Europe's sovereign debt crisis and have been amassing capital in recent months.  The Carlyle Group is seeking $1.5 billion for Carlyle Strategic Partners III and Avenue Capital recently closed on its $753 million American Securities Opportunities Fund.