Driven to distress

One man's bankruptcy is another man's opportunity. Distressed debt funds, which profit from companies that are in financial trouble, have performed poorly in recent years. But with the effects of the credit crunch expected to hit corporate issuers in the next six months or so, distressed investors are gearing up for action. Sarfraz Thind reports

Although most credit market participants may now be looking longingly to the halcyon days before July 2007 when the term 'subprime' hadn't yet entered the common vocabulary, the benign credit environment of the past few years has not been kind to distressed debt investors. Record low default rates meant that investors running pure distressed strategies have seen their supply lines dry up, and have been amongst the poorest performers in the credit markets.

Distressed debt hedge funds ended 2007