01/30/2009

JP Morgan Seeks $2 Billion for Debt Fund

J.P. Morgan is preparing to launch a high-yield debt fund with an equity goal of roughly $2 billion.

The investment bank hopes to raise much, if not all, of the capital by the spring, market players said. The fund would target mezzanine debt and commercial MBS. Details about the vehicle's management structure and return goal were unavailable, but most debt funds these days are targeting net returns in the mid-teens. It's unclear if the fund will use leverage.

Market players said the vehicle would be run by J.P. Morgan Investment Management, part of the bank's institutional asset-management business. Company officials declined to comment.

J.P. Morgan's move comes at a time when a number of players are launching high-yield debt funds to seek to take advantage of credit-market turmoil. Almost four dozen sponsors are currently marketing vehicles. At the same time, more than a dozen other funds have been delayed or ditched because of the difficulty of raising capital.

J.P. Morgan's fund would be one of the largest debt vehicles to get off the ground since the credit crisis began in 2007. Market players expect the bank's size and brand name would help it raise capital more easily than other fund operators.

The bank has past experience managing debt funds. In the early 1990s, J.P. Morgan and O'Connor Group launched two vehicles under the Argo name, investing more than $650 million of equity in distressed assets, including loan portfolios being liquidated by Resolution Trust Corp.

Since then, high-yield funds run by J.P. Morgan have focused on property plays, including two vehicles targeting properties and operating companies in Europe and China.

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