The Colorado Fire & Police Pension Association has allocated $7.5 million to distressed debt and will consider additional commitments to the asset class, according toBill Morris, chief investment officer. The roughly $2.1 billion pension plan investments made its first investment in distressed debt in the early 1990s and decided to jump in again because it made sense given the supply available in the current market. "There have been many defaults over the past year or two, and returns are highly correlated to supply," he noted. "When supply is up, returns are up."
MatlinPatterson Asset Management, which was spun off fromCredit Suisse First Boston in mid-July, was selected to run the new distressed debt mandate. Morris could not say why the firm was chosen as the selection was made by the pension plan's gatekeeper, Pacific Corporate Group. The mandate, which was funded in July, will be invested through MatlinPatterson's $2.2 billion Global Opportunities Partners fund. Calls to MatlinPatterson and the Pacific Corporate Group were not returned by press time.
Although Colorado Fire & Police has no specific allocation to distressed debt, the pension plan's investments in the asset class are part of the special situations subsector of its private equity allocation, which has a target of about 8%. Some 6.5% of that allocation has been invested to date, Morris noted. The pension plan continues to evaluate opportunities to invest in distressed debt and would consider other allocations if they fit in with the overall allocation, he said. So far, however, it has not firmed up any other commitments.