Having recently attended the GAIM USA conference in Boca Raton last week, the overwhelming theme discussed by many of the panelists at the seminar involved the coming surge of distressed fund opportunities. There was a genuine enthusiasm in organizing funds to concentrate in this area. Indeed, several fund managers expressed an interest in branching out into the “distressed” arena, and plan to open with new sub-advisors to service this emerging niche.
While the organizational documents required to create these entities are similar to typical hedge fund organizational documents, the element of due dilligence on the underlying assets of the various portfolios to be acquired will require careful risk assessment which in itself will present new challenges in this area. We anticipate that there will be aggressive jockeying for the better pickings that may be left on the table throughout this year. We envision delicate negotiations with bankruptcy trustees and others. In assessing distressed portfolios, one must consider the impact a trustee may have over the value of the underlying assets.