Hedge Execs Bet On Distressed Securities In ‘08

Jan 3 2008 | 12:32pm ET

Emerging markets has been among the top hedge fund strategies for years, and easily outpaced other approaches last year. But some hedge fund executives expect its reign will end in 2008.

A new survey shows that industry leaders expect distressed securities, global macro and long/short equity funds to best emerging markets this year. The Lipper poll of 41 executives found that more than a fifth think distressed investing is the way to go in 2008. Another 17.5% picked global macro, while 12.5% put their faith in long/short. Just 10% think emerging markets—which returned in excess of 20% last year, when many other strategies ran into difficulty—will remain on top.

Optimism about distressed securities, one of the weakest-performing strategies last year, is buoyed by Moody’s prediction that the high-yield default rate around the world will quadruple this year. But optimism is not limited to distressed strategies.

“A majority of European and U.S. single managers and fund-of-funds managers alike continue to share a very positive performance outlook through the end of 2008,” the Lipper report said.

At the same time, reflecting on last year’s credit market misery, more than 40% of survey executives expressed a desire for independent asset pricing and valuation, especially for the illiquid securities that burned so many hedge funds in 2007.


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