Poor distressed returns
Heard from someone that distressed debt as an asset class has had poor returns. Can anyone verify / elaborate on why?
Trending Content - Hedge Fund Forum
Career Resources
WSO Free Modeling Series - Now Open Through
June 30, 2026
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
High Finance Applications
Guaranteed
Get at least one offer GUARANTEED
- 1:1 support
- 92% success rate
- 2,000+ mentor network
- Unlimited Live bootcamps
- AI for resume + LinkedIn
- Networking automation tools
- HireVue simulation tool
- Full course library
- Private Slack community
- 20hrs of mocks
- + much more...
Bc in a bull market only the shittiest companies have debt trading at 80 or below. It's part of the reason that when funds do perform well in distressed, it is because they all had exposure to a small handful of names (e.g., Echostar). Plus, if you're not part of the 51% (because your fund is not willing to get big enough in a certain security/loan), you're likely to get hosed. It'll be interesting to see what happens with so many otherwise performing credits that have recently been sold off bc of the "AI renders software co terminal values to 0" trade.
Canadian? That's the only place I hear "hosed" commonly used haha
no, would like to go to whistler sometime though...
Thanks! Super helpful! How about distressed funds that want to shift from public to private credit and no longer want to take big exposure in trades loans? Would it be harder to generate pnl?
i don't understand. if you're doing direct lending your aggregate exposure to each borrower is likely higher. i don't work in private credit, but i think pnl not the best phrasing for that world since your assets are not marked to market and you're mostly just trying to mitigate a blowup that could drag down the return of your portfolio.
TBF distressed has now been rebranded to opportunistic credit
Distressed is not an asset class. And I work at a fund that many view as a distressed credit hedge fund
Can credit hegde fund really generate alpha and make money?
Look at Arini capital lol
Not true in the slightest unless you limited distressed to be exclusively “buy mid market bank loans and try to gain control of business”.
Distress returns for anyone with a broader strategy are well correlated with CCC bonds and high yield more broadly. Both indices have ripped and guys have generally done well as most funds run much higher net vs equity peers.
The “broader strategy” is usually come combo of stressed performing credit, equities in sectors that have a big credit angle to them, converts, levered public equities, etc.
Sats, Altice France, etc have all been huge recent winners for distressed funds, and for the broader mandate guys XAI has been huge winner just this week.
Generally you’re stuck with (really) bad companies , with too much capital chasing too few situations
What returns do these funds actually generate? Saw some that market themselves as 20%+ irr. That would mean either meaningful equity positions, or S+1700 (lol), or creative accounting…
No one is looking at returns on a yield basis (your S+1700 comment)
Most things have convexity through the level you’re entering the debt, ie return to event plus the coupon you pick up along the way
To answer your question. most fund will be targeting mid-teens+ but individual positions could easily be >20%
But once you blend the whole book which will typically also include carry type performing positions (amongst many others) you’ll get to the magical mid-teens figure
you could get a safer mid-teen returns engineering unitranche loans with leverage at both investment and structure level, sot not sure how convincing is for LPs mid-teens for a higher risk strategy lol
Labore facere ipsam voluptatem quis. Aut voluptatibus nisi voluptas nihil dolorum doloremque. Eveniet recusandae labore blanditiis voluptatem consectetur vero. Et possimus ad accusamus est non et.
Tempora qui consequatur consequuntur. Pariatur dolorem et eaque laborum expedita. Non perspiciatis maxime quibusdam quia eum ut corporis culpa. Expedita soluta corrupti voluptatem aut praesentium.
Molestiae est deleniti quos ad impedit. Ea nihil voluptate quis dolor corrupti. Delectus sed aut et. Voluptas et eaque ullam omnis repellat quis. Qui soluta sunt ex minus sed voluptatem. Quibusdam reprehenderit fugiat qui magnam rerum.
Unde alias rerum reprehenderit itaque. Rerum ad repellat officiis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...