Major private equity firms, which have built up big distressed debt funds in recent years, are ready to snap up assets on the cheap if market disruptions continue, senior executives said at an industry meeting this week.
“At this point in the cycle, you do have to keep an eye out for potential disruptions and we may already be seeing some of that coming to pass,” said Jason Thomas, global head of research at The Carlyle Group, a $225 billion private equity fund. “Credit becomes relatively undervalued, creating a buying opportunity irrespective of your views on the broader economy,” he added.Many private equity firms have been building up distressed debt funds over several years, keeping a sizeable chunk of them on hold for a downturn. Such “dry powder” among distressed debt funds hit a record $77 billion globally in 2019, according to data from Preqin.The difficulty for these funds is predicting the end of what has been a long economic growth cycle.
“It is a sector that is used to 20-25% of growth but was actually down 20% last year. That, along with energy, are two sectors where we see a lot of dislocations potentially coming up and opportunities for us.”
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