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 report by Bloomberg.
The report cites an investor letter seen by Bloomberg as revealing that the fund will focus on distressed and special situation investments.
The move follows strong performance from Redwood’s previous drawdown fund, which has achieved a 31.6% net internal rate of return (IRR) in 2023 and a 17.4% IRR since its launch in 2021. The firm attributes these results to opportunities arising from market disruptions like the Ukraine war, rising interest rates, and inflation. To date, Redwood has deployed 50% of that fund’s capital.
For its upcoming fund, Redwood plans to increase the size of its investments, aiming to secure greater influence in the contentious restructuring negotiations that have become increasingly common in the distressed debt landscape. This approach is designed to address what the firm describes as “adversarial creditor transactions” and aggressive liability management practices, which have emerged following years of low interest rates and weaker debt protections.
“By holding larger positions, we can better defend our rights and influence outcomes,” wrote Ruben Kliksberg, Redwood’s co-chief investment officer, in a 21 October letter to investors.
The global market for distressed debt remains challenging, with Bloomberg’s tracker estimating just over $500bn in distressed assets, near the lowest levels of 2023. Despite this, distressed-debt hedge funds have performed well, with an average return of 11.1% this year, according to PivotalPath data.
Founded in 2000, Redwood’s master fund — focused on distressed and stressed credits — has delivered a 16.2% net return year-to-date for its main series, based on October-end figures. Meanwhile, the firm’s opportunity fund, which manages $2.4 billion, reported a 12.5% return for the same period.
The new drawdown fund is expected to close on 16 June, 2025, with investments set to begin the following month.
