Morgan Creek Capital Management, the $10.4 billion fund of funds shop, has launched a distressed offering to exploit opportunities in the credit markets.

The Chapel Hill, N.C.-based firm last month launched the Dislocation Fund, a $36 million vehicle that will invest in hedge and private equity funds, and is looking to raise some $500 million, according to a source familiar with the firm’s business development efforts.

The Dislocation Fund will invest in some 20 underlying managers focusing on leveraged loans and senior debt, mortgage-backed securities, collateralized loan obligations and municipal bonds. It sports a five-year lockup but will return capital to investors in line with some of its underlying portfolios, such as coupon payments from munis.

The firm had no comment on its new offering.

Morgan Creek was founded in July 2004 by Mark Yusko, former chief investment officer of the $1.2 billion University of North Carolina at Chapel Hill endowment. In April 2005, the firm entered into a joint venture with Julian Robertson, Jr., and Tiger Management to develop an investment platform through an affiliate called Tiger Select Fund Management.