Institutional Investor's Alpha Magazine - March 2009 - (Page 21) DISTRESSED DEBT INVESTING DIVING BACK INTO DISTRESSED After the beating they took in distressed debt last year, hedge fund investors see bargains ahead but say an anticipated recovery in liquidity is key to jump-starting the 2009 market. By Kathryn Tully n a recent survey by Debtwire, 56 percent of the 100 respondents predicted returns of more than 20 percent from the distressed-debt market in 2009, even though the Hedge Fund Research index of distressed and restructuring funds lost 25 percent last year and over 22 percent since September. That’s the most confidence shown in the market since the survey began in 2005. Commissioned by Bingham McCutchen, FTI Consulting and Macquarie Capital, the survey polled hedge fund investors, proprietary trading desks and other asset managers. With no shortage of investment targets, there’s every reason for optimism about the market’s potential. According to Standard & Poor’s, 85 percent of all high-yield corporate bonds are distressed (trading at a secondary spread of over 1,000 basis points), and 75 percent of performing leveraged loans are also distressed, an all-time high for both markets. Furthermore, there’s much less competition in the market, March 2009 • This Sponsored Report was prepared by the Special Projects Department of Alpha and written by Kathryn Tully, a journalist based in New York.
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