Distressed debt assets under management for U.S. institutional, tax-exempt clients grew 42.6% to $13.7 billion in the year ended Dec. 31, results of Pensions & Investments' annual survey show. Assets of the largest distressed debt manager, Oaktree Capital Management LP, rose 36.2% to $10.7 billion. In April 2020, Oaktree announced its intention to raise the largest distressed debt fund in history, $15 billion for Oaktree Opportunities Fund XI, according to a Preqin report.
So far, the fund has raised $14.7 billion, with 50% invested or committed to public and private market investments, said Nicholas Goodman, managing partner and chief financial officer of Brookfield Asset Management, which owns a majority of Oaktree, on a May 13 Brookfield earnings call.
So far in 2021, as of May 21, nine distressed funds raised $3 billion, which is a fraction of the $11 billion in capital raised by 17 distressed funds in the first two quarters of 2020, according to Preqin.
However, not just specialist managers can make distressed investments. Credit funds that had broad mandates, allowing them to make a combination of liquid and illiquid credit investments, continued fundraising, Ms. Srivastava said.
The story was the same across real asset segments, managers said. The top money managers' real estate equity AUM for U.S. institutional, tax-exempt investors tumbled by 13.7% to $379.7 billion in 2020, infrastructure AUM was relatively flat at $39.9 billion and real estate investment trust AUM fell by 3% to $122.8 billion.
"There wasn't a significant sustained decline in valuations, apart from a few sectors in real assets," said Anne Valentine Andrews, New York-based managing director, global head of real assets at BlackRock Inc.
BlackRock had $7 billion in real estate AUM for U.S. institutional, tax-exempt investors as of Dec. 31, flat from the end of 2019, according to P&I data.
"If you asked back in March (2020), we might have expected more" valuation declines, she said.
Instead, the trends that existed before the COVID-19 crisis escalated much faster during the pandemic, including a "huge acceleration" of ESG-focused investments, she said.
Real asset strategies that are poised to do well include renewable energy, telecommunications, digitalization as well as investments to take advantage of demographic trends such as investing in senior living, Ms. Andrews said.
In 2020, BlackRock raised $12 billion, its biggest fundraising year ever in real assets, she said. However, transactions dropped in 2020, recovering in 2021, "given the dry powder and managers' deployment needs," she said.
What helped real asset sectors is that unlike during the Great Recession, the capital markets remained open, Ms. Andrews said.
"It was easy to get a bit of a runway for assets," she said.
Lenders were willing to make deals with borrowers to give them time to work out issues they had and there was capital available to tide investors over.
"Everyone was vying for time to see how (the pandemic) would all play out," she said.
Lenders weren't too worried if an asset had a short-term revenue hit, Ms. Andrews said.
For example, BlackRock has some airport and toll road investments, mostly in its debt portfolios, she said. The biggest question that nobody had the answer to was when would the traffic return, even though everyone thought the travelers would return eventually, she said.
"They just needed to ride out the storm — not that anybody prepared for zero revenue," she said.