US distressed debt funds look to euro crisis for opportunities

With default rates starting to recede and distressed fund managers reporting double-digit returns at the end of 2010, the stressed and distressed debt market may already have peaked. However, specialist investors in Europe and the US say dynamic strategies combining credit, equity and derivatives approaches can still unlock long-term value.

After two impressive years during which distressed and stressed debt investors achieved returns in the high teens and low twenties, the party could be over for traditional players.

According to the Thomson Reuters 2010 Distressed Debt and Bankruptcy Restructuring Review, the global market shrank by 6.2% last year with $305.1 billion of deal activity. With the Standard & Poor’s/LSTA US Leveraged Loan 100 Index already touching its highest level since the end of 2007, the general rally in fixed