Survey: Hedge Funds Like Distressed Debt, Doubt Efficacy Of Dodd-Frank

Mar 23 2011 | 4:29pm ET

As their risk appetite grows, hedge fund managers are investing increasingly in financially troubled companies and employing a number of strategies to do so, according to a survey by Dykema and Reuters HedgeWorld.

The survey of 101 hedge fund managers conducted in January and February of this year found that a record 72% of fund manages reported having a portion of their portfolios invested in financially troubled companies, up from 65% in 2010.

Moreover, it’s a trend likely to continue in 2011: about 68% of the hedge fund managers surveyed said they expect capital to be more available to financially troubled companies in 2011, while 29% expect it to fall.

The survey showed that financially troubled companies continue to generate positive returns for the majority of hedge funds: 62% of respondents who invested in financially troubled companies have seen these positions increase in value.

Other survey highlights include the reviving popularity of loan-to-own strategies (29% of respondents reported participation in such strategies, up from 17% in 2010; 50% of these hedge funds had successfully acquired an ownership stake).

In addition, the majority of managers polled (58%) believed the Dodd-Frank Act would be ineffective in making the marketplace more transparent.

 


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