Key Takeaways
- • Redwood Capital Management, an opportunistic credit hedge fund with $9.4bn in assets under management, is preparing to raise $2.25bn for a new distressed debt drawdown fund, according to Bloomberg.
- • The new fund will focus on distressed and special situation investments, with Redwood aiming to hold larger positions to gain greater influence in contentious restructurings.
- • Redwood's previous drawdown fund posted a 31.6% net IRR in 2023 and a 17.4% IRR since its 2021 launch, and has deployed 50% of its capital to date.
- • Redwood's master fund returned 16.2% net year-to-date through October for its main series, while its $2.4bn opportunity fund returned 12.5% over the same period.
- • The new drawdown fund is expected to close on 16 June 2025, with investments beginning the following month.
Summary
Redwood Capital Management, an opportunistic credit-focused hedge fund with $9.4bn in assets under management, is preparing to raise $2.25bn for a new distressed debt drawdown fund, according to a Bloomberg report citing an investor letter. The fund will focus on distressed and special situation investments.
The move follows strong performance from Redwood's previous drawdown fund, which achieved a 31.6% net internal rate of return in 2023 and a 17.4% IRR since its launch in 2021. The firm attributes these results to opportunities created by market disruptions, including the Ukraine war, rising interest rates and inflation. To date, Redwood has deployed 50% of that fund's capital.
For the upcoming fund, Redwood plans to increase the size of its positions to secure greater influence in restructuring negotiations, which the firm says have become increasingly contentious as "adversarial creditor transactions" and aggressive liability management practices have spread following years of low interest rates and weaker debt protections. In a 21 October letter to investors, Ruben Kliksberg, Redwood's co-chief investment officer, wrote: "By holding larger positions, we can better defend our rights and influence outcomes."
The global distressed debt market remains challenging, with Bloomberg's tracker estimating just over $500bn in distressed assets, near the lowest levels of 2023. Distressed-debt hedge funds have nonetheless performed well, averaging an 11.1% return this year, according to PivotalPath data.
Founded in 2000, Redwood's master fund, focused on distressed and stressed credits, has returned 16.2% net year-to-date for its main series based on October-end figures. The firm's opportunity fund, which manages $2.4bn, reported a 12.5% return over the same period. The new drawdown fund is expected to close on 16 June 2025, with investments set to begin the following month.
The move follows strong performance from Redwood's previous drawdown fund, which achieved a 31.6% net internal rate of return in 2023 and a 17.4% IRR since its launch in 2021. The firm attributes these results to opportunities created by market disruptions, including the Ukraine war, rising interest rates and inflation. To date, Redwood has deployed 50% of that fund's capital.
For the upcoming fund, Redwood plans to increase the size of its positions to secure greater influence in restructuring negotiations, which the firm says have become increasingly contentious as "adversarial creditor transactions" and aggressive liability management practices have spread following years of low interest rates and weaker debt protections. In a 21 October letter to investors, Ruben Kliksberg, Redwood's co-chief investment officer, wrote: "By holding larger positions, we can better defend our rights and influence outcomes."
The global distressed debt market remains challenging, with Bloomberg's tracker estimating just over $500bn in distressed assets, near the lowest levels of 2023. Distressed-debt hedge funds have nonetheless performed well, averaging an 11.1% return this year, according to PivotalPath data.
Founded in 2000, Redwood's master fund, focused on distressed and stressed credits, has returned 16.2% net year-to-date for its main series based on October-end figures. The firm's opportunity fund, which manages $2.4bn, reported a 12.5% return over the same period. The new drawdown fund is expected to close on 16 June 2025, with investments set to begin the following month.
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