Investor interest in distressed debt currently outstrips all other private debt fund types, with 52% of institutions targeting the strategy in Q1 2018. However, fundraising has slumped in 2018 so far, with just three distressed debt funds having reached a final close as of the end of April.

That's according to new analysis from Preqin, which found that funds currently in market are seeking $36 billion, less than half the $77 billion sought by direct lending vehicles, and only marginally ahead of the $28 billion sought by mezzanine funds.

According to Preqin, this may be in part due to the size of distressed vehicles, as funds in market are seeking $987 million, on average, suggesting each one can cater to more investors than a typical mezzanine or direct lending fund.

"In part, it may be that because distressed debt vehicles tend to be larger than other debt funds, they can absorb more investor interest within each vehicle," said Tom Carr, Head of Private Debt Productsat Preqin. "As such, the smaller number of funds in market may have less impact than it would appear."

Just three distressed debt funds have closed so far in 2018, raising a total of $9.5 billion. Overall, the distressed debt market remains largely focused on the U.S., which accounts for two-thirds of the capital being targeted.

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