Distressed debt hedge funds find few opportunities

Hedge funds and private equity funds have raised billions of dollars to invest in distressed debt over the past two years. But investing this capital is proving to be more difficult than anticipated.

The rapid recovery of credit markets has caught distressed debt investors by surprise and forced many to reassess their investment plans.

Twelve months ago all the talk was of an unprecedented and historic opportunity in distressed debt. The expectation was that default rates would remain high for an extended period of time due to the depth of the economic recession and the huge amounts of leverage in the system.

That was before central banks flooded the markets with liquidity. The credit rally