Dutch firm launches distressed debt fund of funds

Theta Capital Management has launched a new fund to take advantage of the turning of the credit cycle.

One of the oldest and largest hedge fund specialists in the Netherlands, Theta is now offering the fund to investors outside of its immediate network of family offices and endowments.

The Theta Distressed Credit Opportunities Pool is a fund of funds with a focus on investing in dislocated credit instruments and distressed debt and restructuring opportunities. Theta currently has over $60 million allocated to the strategy as of July 1.

The open-ended fund is available for monthly subscriptions and quarterly redemptions with 90-day notice with 25% investor level gate. The team is offering a founder share class with preferential fees through October 1.

“The COVID-19 pandemic has set off a chain of events that, in our view, is quickly leading to the largest global distressed credit cycle in a generation,” said Ruud Smets, partner at Theta.

The fund will allocate to four to eight specialist managers at any time, depending on the evolving opportunity set, with a focus on investing in dislocated credit instruments, distressed debt and restructuring opportunities, said Marc de Kloe, partner at Theta.

“We launched the fund to allow investors to take advantage of the distressed investing opportunities in a diversified, easy to access manner, which is not available from most investment advisors, wealth managers or investment platforms,” Kloe added.

The return target for the new offering is 10% plus per annum on a five-year investment horizon with limited correlation to markets.

According to the Theta team, the global shut down of economies has ignited a multi-year, multi-faceted distressed credit cycle. It comes at a time they said when the corporate credit markets were already over extended and the market structure was vulnerable with ‘tourist’ investors chasing yields through liquid vehicles and banks and broker dealers no longer being able to serve as a cushion.

They said that the backdrop to the fund launch offers attracted risk-adjusted returns with significant margins of safety, to an extent that has not existed since the Great Financial Crisis.

Smets, who has been at Theta for over 15 years has built up relationships with manage managers in the space. While investment opportunities in distressed debt have been limited in recent years, Theta has used this period to secure capacity with some of the best managers who have been handing back capital to investors recently.

Now these same managers are starting to open up to investors to capitalize on the newly expanded opportunity set.

“We have seen this cycle play out before and we know how to navigate it,” said Smets. “Distressed debt investing is one of our favorite investment styles because competition is limited, and you take predominantly process risk and not market risk.”