Key Takeaways
- • King Street Capital Management, a $23 billion hedge fund co-founded by Brian Higgins and Fran Biondi in 1995, is raising approximately $3 billion in fresh capital across multiple funds to capitalize on distressed credit opportunities.
- • Distressed debt in dollar-denominated corporate bonds and loans across the Americas has surged to $274 billion as of end-June 2023, up from below $100 billion in early May 2022, creating a substantial opportunity set for opportunistic investors.
- • King Street joins Angelo Gordon & Co. and Brookfield Asset Management in deploying capital toward credit market dislocations driven by rising interest rates and economic weakness affecting highly leveraged companies.
- • Co-founder Brian Higgins characterized current market conditions as a "slow-motion car crash," with gradual tightening of financial conditions for debt-laden businesses and consumers as pandemic stimulus savings deplete, positioning the firm for incremental deployment rather than aggressive bulk purchases.
- • The fundraising effort represents a strategic pivot for King Street, which had faced client redemptions following years of low-single-digit returns and was sitting approximately 40% in cash prior to this capital raise.
Summary
King Street Capital Management is raising approximately $3 billion across its investment funds as the $23 billion hedge fund positions itself to exploit emerging credit market dislocations. Co-founder and senior figure Brian Higgins, who alongside fellow First Boston alumnus Fran Biondi established the firm in 1995, is leading the capital raise with an explicit focus on distressed debt opportunities. The firm's track record of capitalizing on high-profile credit events—including its participation in the post-Lehman Brothers restructurings, Revlon's bankruptcy, and WeWork's distress—demonstrates its operational competency in navigating complex workout situations.
The timing of King Street's fundraising reflects a structural shift in credit market conditions. According to Bloomberg data, distressed debt denominated in dollars across the Americas—defined as loans or bonds in default or at substantial risk thereof—has climbed to $274 billion as of late June 2023, a dramatic increase from below $100 billion in early May 2022. This expansion has been driven by sustained increases in interest rates and economic weakness, creating pressure on companies that accumulated leverage during the extended period of low borrowing costs that preceded the Federal Reserve's tightening cycle.
Higgins's characterization of the market as a "slow-motion car crash" underscores the fund's expectations for gradual rather than sudden credit deterioration. As pandemic-era fiscal stimulus savings are depleted and financial conditions tighten incrementally for both corporate and consumer borrowers, the fund anticipates sustained opportunities for selective new lending and opportunistic acquisitions of stressed assets. This measured outlook distinguishes King Street's positioning from more aggressive crisis-mode deployment strategies.
King Street's capital raise occurs amid a broader institutional trend, with competitors including Angelo Gordon & Co. and Brookfield Asset Management similarly accumulating dry powder for credit opportunities. The fundraising also marks a recovery trajectory for King Street, which experienced a challenging period marked by investor frustration with extended periods of low-single-digit returns and had maintained a substantial 40% cash position. The $3 billion raise signals renewed investor confidence in the firm's ability to generate returns in a distressed credit environment.
The timing of King Street's fundraising reflects a structural shift in credit market conditions. According to Bloomberg data, distressed debt denominated in dollars across the Americas—defined as loans or bonds in default or at substantial risk thereof—has climbed to $274 billion as of late June 2023, a dramatic increase from below $100 billion in early May 2022. This expansion has been driven by sustained increases in interest rates and economic weakness, creating pressure on companies that accumulated leverage during the extended period of low borrowing costs that preceded the Federal Reserve's tightening cycle.
Higgins's characterization of the market as a "slow-motion car crash" underscores the fund's expectations for gradual rather than sudden credit deterioration. As pandemic-era fiscal stimulus savings are depleted and financial conditions tighten incrementally for both corporate and consumer borrowers, the fund anticipates sustained opportunities for selective new lending and opportunistic acquisitions of stressed assets. This measured outlook distinguishes King Street's positioning from more aggressive crisis-mode deployment strategies.
King Street's capital raise occurs amid a broader institutional trend, with competitors including Angelo Gordon & Co. and Brookfield Asset Management similarly accumulating dry powder for credit opportunities. The fundraising also marks a recovery trajectory for King Street, which experienced a challenging period marked by investor frustration with extended periods of low-single-digit returns and had maintained a substantial 40% cash position. The $3 billion raise signals renewed investor confidence in the firm's ability to generate returns in a distressed credit environment.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.