RT Journal Article
SR Electronic
T1 The Distressed Corporate Debt Cycle from a Hedge Fund Investor's Perspective
JF The Journal of Alternative Investments
FD Institutional Investor Journals
SP 23
OP 42
DO 10.3905/jai.2008.708848
VO 11
IS 1
A1 Ping Chen
A1 José F. González-Heres
A1 Steven S. Shin
YR 2008
UL https://pm-research.com/content/11/1/23.abstract
AB This article analyzes the distressed corporate debt cycle from the perspective of a hedge fund investor rather than a hedge fund manager. The authors find that the distressed cycle has an element of memory (repeatability) and can be categorized into three distinct states within a cycle. The authors also find that the Distressed Ratio, which measures the available supply of distressed debt within the high-yield universe, serves as the key factor in predicting distressed hedge fund manager returns. Furthermore, evidence is presented that indicates that regime-switching analytical techniques can be useful in identifying trigger (or inflection) points that lead to state transitions within the cycle. The authors conclude that investors can improve their odds of enhancing return expectations by tactically adjusting their exposure to the strategy based on an understanding of the opportunities and risks afforded by each state within the cycle.TOPICS: Real assets/alternative investments/private equity, fixed income and structured finance, credit risk management, performance measurement