Remember bad banks?

Bad funds could be a thing, too.

Bad funds: Bad banks are vehicles designed to cleanly separate and capitalize non-performing assets with the goal of winding them down over time. They were set up a lot in the aftermath of the 2008 crisis, a little after the eurozone sovereign debt crisis and more recently by Deutsche Bank.

Anyway sister title Secondaries Investor reports that the idea of a ‘bad fund’ could come to private equity (I briefly mentioned this in a recent article about LP defaults, but I’m not sure you noticed). The circumstances will be very different, if it happens of course. The last crisis centered around banks, and many of the bad loans (and derivatives of them) they made, which led to a downturn that took a lot of good loans and other assets with it. These funds, I imagine, would almost wholly consist of assets that just couldn’t survive the pretty much full-stop on cashflow that resulted from the coronavirus pandemic. That is to say: not necessarily bad assets, but badly wounded ones. But it would also be inherently harder to do in PE, as Rod James reports.