Distressed strategy comes into play

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The lure of distressed debt strategies is easy to understand given current market conditions. These funds buy debt trading at a discount because the borrower is at risk of defaulting and they aim to profit from a successful restructuring or turnaround of the company.

There is currently an abundance of opportunity to buy discounted debt securities. The corporate debt market has been badly hurt by the financial crisis. Bank debt is trading at historic lows due to balance sheet pressure and market