Distressed debt funds are swarming around portfolios of assets that banks are selling to reduce their risk exposure.
In addition, plenty of distressed-debt funds specialise in taking positions when things look ugly.
TPG, two of the biggest sponsors of leveraged buy-outs, both have distressed-debt funds, and Blackstone has expanded its already big restructuring unit.
Many private-equity firms have long had mezzanine or distressed-debt funds.
Kohlberg Kravis Roberts , LittleJohn and HSBC (nyse: HBC - news - people ) are just three of the latest to jump into the market with new distressed-debt funds, lining up for what is expected to be a pickup in corporate bond defaults even as other veterans of the distressed-debt market complain about a lack of opportunities.
Distressed-debt hedge funds in general returned 4.95% in the first three months of the year, according to Hedge Fund Research.
Articles in Institutional Investor show that more traditional asset managers, like pension funds, are buying real estate, investing in hedge funds, distressed debt and CLOs again and in hedges for their book, she added.
But distressed-debt buyers, including hedge funds, have been snapping up the airlines' specialized securities, called pooled asset-backed securities and enhanced equipment trust certificates (EETC)--and making out quite well.
Hedge funds and other speculative distressed-debt investors have been buying the senior positions, or tranches, of airline equipment trusts, giving them some cover for their at-risk investments in the lower tranches and giving them a say in the restructuring of the airline itself.
Banks and hedge funds are increasing their expertise in the distressed-debt market, where the most pungent credits will eventually end up.
Canyon Partners LLC, a money manager founded by bond experts from the former "junk"-bond shop Drexel Burnham Lambert, and CQS, a London hedge-fund firm founded by U.K. millionaire Michael Hintze, recently launched new investment funds to take advantage of bargains in distressed mortgage debt.
Third, special situations funds are active in a broad array of debt financing and other investments in distressed or rapidly changing companies.
Hedge funds, as Mr Lamy points out, have an appetite for buying debt but only at distressed prices.
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