Hedge Fund Reader : Hedge Fund Investments

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May 23, 2006

Hedge Fund Investments

According to industry experts, the trend of hedge funds investing in distressed funds has grown significantly over the past coupe of years. The trend is due to the simultaneous increase in the capital managed by hedge funds. The industry already witnessed a sizeable upswing in this trend. With so much money and fewer traditional investment opportunities, hedge funds readily accept these types of unconventional high-risk, high-payoff ventures.

Prior to the investment boom, there were few options for distressed funds. Traditional banks are not keen to lend money to fund liquidations. Banks generally only lend when there is an assurance that the borrower can repay the loan. Hedge funds are willing to finance such liquidations because of the potential for high returns.

Typically, a hedge fund will buy out as much of the original investment in a distressed fund as it can. The intention is to become the sole or the largest investor. It also helps the investors to recover other assets. The funds recovered in the process are distributed to all the investors including the investing hedge fund.

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May 23, 2006 in Emerging Markets | Permalink