By Daniel McNulty
Hedge funds can generate massive returns in relatively short periods of time, and they can also go into financial crises just as quickly. What kind of investments can produce such diverse returns? One answer is distressed debt. The term can be loosely defined as the debt of companies that have filed for bankruptcy or have a significant chance of filing for bankruptcy in the near future. You might wonder why a hedge fund - or any investor, for that matter - would want to invest in bonds with such a high likelihood of defaulting. The answer is simple: the more risk you take on, the more reward you can potentially make. Distressed debt sells at a very low percentage of par value. If the once-distressed company emerges from bankruptcy as a viable firm, that once-distressed debt will be selling for a considerably higher price. These potentially large returns attract investors, particularly investors such as hedge funds. In this article we'll look at the connection between hedge funds and distressed debt, what ordinary investors can do to get involved and if the risks are really worth the rewards. Read Article: http://www.investopedia.com/articles/bonds/08/distressed-debt-hedge-fund.asp Comments are closed.
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May 2017
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