Distressed Debt Proves Toxic Like 2008 as Defaults Fuel Losses
- Strategy set for worst year since Lehman Brothers collapsed
- Failures in Asia contributed as Kaisa reneged, Berau defaulted
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Global hedge funds betting on distressed debt are suffering their worst year since 2008 as corporate defaults in emerging markets such as Asia spiked higher and the fifth year of a commodity slump fueled losses. Things might only get worse.
Funds using distressed-debt strategies lost 4.5 percent this year through November, set for the first annual decline since the global financial crisis, according to Eurekahedge Pte. Some investors are predicting more losses after a market rout forced Third Avenue Management LLC to liquidate a mutual fund. Amid growing stress in the credit market, the Federal Reserve on Wednesday raised interest rates for the first time in almost a decade.