As many hedge funds scramble to keep investor’s from redeeming and/or proposing to restructure the terms of the fund, other funds are getting ready for the next wave of hot investments: distressed assets.
As evidence that money will be moving into these areas is a story by Reuters about a new launch of a distressed debt fund of funds. According to the article, the fund of funds will invest in other distressed asset hedge funds and will have a two year lock up person. GAM chief executive David M. Solo told Reuters that “We are completing a thorough review of a range of the best managers in the U.S. and Europe so as to create a diversified vehicle to benefit from this unique opportunity.”
While this is the first article I have seen announcing a fund of funds focusing on this asset strategy, there are likely to be more of these fund of funds launching in the future. The New York Times also ran a story this morning about “vulture investors” sitting on the sidelines for now. While the NYT article discusses players biding their time, it also notes that the “volume of loan portfolios sold in the first three weeks of October has already beaten the previous monthly record.” This indicates that the area is heating up and is likely to be a popular strategy near the end of this year and the beginning of next. Additionally, other types of credit based funds, like asset based lending funds, are likely to be popular in the next year as the credit markets continue to be locked.
Investing in distressed assets has always been one of the central hedge fund strategies. These investments might include investing in distressed debt and other types of distressed assets. One of the bigger issues for investors in distressed asset hedge funds is going to be lock-up period. Because the asset class is not as liquid, the lock-up for investors is going to be longer, as it will generally be in the hedge fund industry going forward.
Other relevant articles include: