Distressed hedge fund and distressed private equity firm’s interest has been steadily increasing due to the recent dislocation in credit markets earlier in the year. Many investors over Q4 2008-Q1 2009 believed it was still a bit early to invest in these funds- however the amount of launches to take advantage of opportunities and existing top tier firms that specialized in distressed have fared well in terms of reported allocations.
Our data shows that both distressed hedge fund and distressed private equity fund investors are gaining in popularity amongst investors. Since June 1, 30% of active hedge fund investors have expressed in distressed debt funds, while 36% of private equity fund investors have expressed interest. Institutional investors with long-term investment horizons that were not hit as hard as some during the liquidity crisis can take advantage of the opportunities presented with distressed debt, bank loans, real estate, and financing to distressed companies.
According to the HFRI index, distressed/restructuring lost approximately 16 percent last year has bounced back and is up approximately 10 percent on the year. According to the Credit Suisse/Tremont hedge fund tracking index, adjusted annualized Sharpe ratio since 1994 is 1.02, the highest Sharpe ratio of the categories in the broad index.
While the demand for distressed funds ranges in terms of underlying investment opportunities, developed and emerging market opportunities has close to equal attention. Emerging markets distressed investing has been one of the most mentioned regions on the private equity side, as a US based wealth advisor is currently searching for China-focused distressed funds. A large US corporate pension based in the Midwest also has a search out for global distressed funds.
As distressed funds proliferate, experienced management teams with long track records in the space will have an edge in terms of getting in front of institutional investors at this time. There is an abundance of opportunity at the moment and funds capitalizing on these opportunities will need to focus their marketing efforts to capture the potential upcoming allocations.
Disclosure: No Positions
