New York (HedgeCo.net) – The distressed debt market is not the place for the faint of heart. Last year saw some of the world’s largest macro hedge funds lose money due to distressed debt investments that didn’t work out. Despite the troubles distressed debt has caused hedge funds, John Paulson is readying a new fund that will focus on distressed debt investing. The new fund has been dubbed the Paulson Strategic Partners Fund.

Paulson has made a name for himself back in 2007 when he made incredible returns by betting against the U.S. housing market and he has been very successful within the distressed debt arena. A recent CNBC article noted that Paulson was instrumental in deals with Delphi, OneWest Bank and Extended Stay America and those three deals generated returns for investors that were five times, 3.2 times and 2.5 times the original investment.

One interesting aspect to the structure of the fund is that it will be set up as a capital call fund which means the fund won’t start charging fees until the money is put to use. This approach suggests that Paulson is being cautious in trying to time his first deal. When he served on a recent panel moderated by CNBC, Paulson stated that, “We’ve modestly added to the portfolio but the market is still falling, so, anything you buy goes lower,” “It’s getting near the point where there’s certainly a lot of value out there.”

Rick Pendergraft
Research Analyst
HedgeCoVest