Investing in distressed
companies is poised to become even more appealing to hedge funds
in 2007 as markets conditions continue to regard the strategy which
has outperformed expectations, with approval.
Distressed strategies have returned 13.4% this year overall.
With low rate of defaults, expected to be between 2% and 3%,
distressed strategies will be favoured. Strong returns are
predicted for distressed investing as demand from corporate
and private equity investors for mergers and acquisitions activity
seems to remain high.
Auto suppliers, airlines, paper and packaging, home building,
sub-prime lending and healthcare are the sectors, where hedge
funds can expect to find most opportunities. While factors
that could have a negative impact on returns in distressed
investing include, a recession, severe losses in private equity
or banking sectors or a spike in default rates.