Global macro and market neutral strategies look set to bring highest returns over the next 12 to 18 months, but it is still too early for a pick-up in distressed debt investing, top HF executives said at the Global Alternative Investment Management meeting in Monaco. Speakers said volatility in market conditions and the prospect of the credit crisis worsening have made market neutral funds and macro funds attractive. Global macro funds, which returned 17.36% in 2007 and 5.19% in the first four months of 2008 and which bet on the global equity markets, world currencies, sovereign debt and commodities, are favored as they perform better in periods of increased volatility.

Despite expectations among many HF investors that distressed debt investing, which has thrown up few opportunities in recent years due to historically low default levels, will again prove rewarding as corporate defaults rise, HF executives believe this will take time. However, some firms are preparing for a return of the distressed cycle. "These are volatile times," said Alberto Borrero, global head of research at Tudor Group. "I think it's a bit early to start deploying massive amounts of capital into distressed, although we have recently hired a team to do so…. We want to be early."