Although the dust seems to have settled on the coronavirus pandemic’s economic ramifications, the next unexpected and dramatic economic event is never far away. That recently became apparent when Russia’s invasion of Ukraine scattered uncertainty through the global financial markets and caused Russia’s benchmark index, the Moscow Exchange, to plummet more than 50% in a single day. Fund managers need to position themselves to take advantage of the type of dislocations caused by future pandemics, invasions and other events. One under-the-radar approach that is likely to rise in popularity going forward is the use of a contingent dislocation fund (CDF), which is a closed-end vehicle that is fully committed but remains dormant for a specified duration until its investment period is triggered by a market dislocation. This three-part series provides an overview of the nascent CDF structure and key functions it offers. This first article contains an overview of fundamental elements of a CDF (e.g.
, its hybrid structure, typical investment strategy, etc.) and trends in the vehicle’s adoption. The second article
will explore unique features of CDFs, such as the trigger mechanism and synthetic rollover. The third article
will describe the types of investors and managers that find CDFs appealing, along with potential related risks and downsides. See “Determining ‘Fair Value’ During a Crisis: Coronavirus’ Impact on Private Debt and Equity Valuations
” (May 5, 2020).