Distressed Recovery Funds
How V3 recovery funds use epochs, side pockets, controlled acquisitions, and claimable proceeds for impaired-asset opportunities.
Distressed Recovery Funds let investors opt into recovery opportunities after an asset becomes impaired. They are not normal liquid vaults. A fund uses one quote asset; investor capital begins as an epoch position, can become committed to a specific side pocket, and becomes claimable only when that side pocket realizes value or enables an in-kind distribution.
The fund is separate from the originating lending vault. It does not transfer an original vault depositor's loss into a new fund claim. An investor receives recovery-fund exposure only by subscribing to the applicable fund epoch.
Who this is for
Use a Distressed Recovery Fund only if you understand that recovery exposure can be illiquid, uncertain, and dependent on the underlying impaired asset. It is for investors who want to review an opportunity directly and accept that timing, sale price, final proceeds, and claim timing are not guaranteed.
This is different from depositing into a standard lending vault. A normal vault is used to fund borrower credit lines. A Distressed Recovery Fund is used to participate in recovery after stress has already appeared.
How the fund works
| Step | What happens | What to check |
|---|---|---|
| Subscribe to an open epoch | You deposit the fund quote asset into the current funding epoch. | Check the quote asset, minimum deposit, capacity, close time, and your investor eligibility. |
| Keep idle capital or commit it | Capital remains redeemable only while it is idle. A fund manager can propose a specific acquisition after its controlled approval is ready. | Check the epoch's idle balance and whether an approved acquisition targets the epoch. |
| Fund a side pocket | A closed epoch can commit quote capital to an approved acquisition. The fund receives the distressed asset and creates a side pocket for that exact exposure. | Check the case, cost basis, asset lot, evidence, and your committed claim. |
| Realize or distribute recovery | A direct sale, permissioned auction, invited RFQ, workout payment, or enabled in-kind distribution can realize or deliver value. | Check sale or workout status, remaining asset exposure, realized quote proceeds, and claim terms. |
| Claim or redeem | You can redeem idle epoch capital when it remains idle. Side-pocket claims become available only under the applicable proceeds or in-kind rules. | Check idle balance, claimable amount, claim pause state, and remaining exposure. |
The main statuses
These statuses show where your capital sits and what you can do next, without requiring you to read the underlying epoch accounting first:
| Status | Meaning |
|---|---|
| Idle epoch position | Your quote asset remains in the epoch and is not committed to a side pocket. |
| Scheduled or approved acquisition | The manager has a specific acquisition route under review or ready for execution. This does not move your capital until the acquisition executes. |
| Committed side-pocket claim | Your epoch capital has been allocated to one distressed position. The claim is separate from idle capital. |
| Quote proceeds claimable | The side pocket has realized quote proceeds and your claim is not paused. |
| In-kind claim enabled | The fund has made a defined amount of the remaining distressed asset available for claim before its stated deadline. |
| Recovery holding | You retain exposure to a side pocket that has not fully realized, been sold, or been distributed in kind. |
What makes this more controlled than an ad hoc recovery
These controls help you see where capital sits, which recovery position it belongs to, and when proceeds become claimable:
| Control | Why it matters |
|---|---|
| Single quote asset per fund | Deposits, purchases, sale proceeds, workout proceeds, claims, and fees use one fund quote asset. |
| Action-approved acquisition | An acquisition binds the case, epoch, seller, asset, asset amount, quote amount, and evidence. A manager cannot substitute different terms. |
| Side-pocket accounting | Each purchased distressed exposure is tracked separately from the epoch's remaining idle capital. |
| Non-transferable claims | V3 epoch and side-pocket units are non-transferable, so claims stay tied to the account that subscribed. |
| No arbitrary manager custody | Managers can operate only controlled routes; they cannot sweep or redirect investor capital outside those routes. |
| Fee terms fixed for the epoch | Preferred-return and performance-fee terms are captured with the epoch and carried into its side pockets. |
What this is not
A Distressed Recovery Fund does not guarantee recovery, liquidity, yield, or a fixed exit date. It does not make an impaired asset safe. It gives you a defined participation and accounting path for recovery exposure.
Do not treat recovery-fund shares or side-pocket exposure as the same thing as idle cash. Once capital is committed to a recovery purchase, it depends on the recovery outcome.
What you can do
When a recovery fund is available in your workspace, you can review its quote asset, epoch terms, investor eligibility, side pockets, sales, RFQs, auctions, proceeds, claims, fees, pauses, and audit activity. You can subscribe, redeem idle capital, or claim only when the applicable fund state and your permissions permit the action.
If no fund appears, that usually means no recovery fund has been enabled for the workspace or the recovery opportunity has not been indexed yet.