From its London perch, CQS has already seen the future for distressed debt hedge funds, and expects that it won't be long before its U.S. rivals do as well.
That future, according to the US$10.5 billion firm, is in Europe, where the distressed debt cycle "is behind the U.S. by anywhere between 12 to 18 months," CQS's Mark Unferth told Bloomberg News. Standard & Poor's last month predicted that the continent could see a wave of defaults next year and in 2013, while Unferth said that "we will start to see European banks selling their distressed assets."
"Are we going to see a flood or is it going to be more dribs and drabs?" Unferth, himself based in New York, asked. "It's probably going to be somewhere in between."
As junk bond prices in the U.S. have rallied, Unferth said CQS is "allocating more capital to Europe." And it won't be alone: "You will see more U.S. distressed funds in Europe," he predicted.