Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

It's hard to find a worthwhile investment these days when stocks and bonds are almost universally expensive.

A transaction highlighted on Wednesday by Bloomberg's Sridhar Natarajan, Eliza Ronalds-Hannon and Mark Chediak shows the degree of desperation among investors, even for the most sophisticated. Hedge funds agreed to buy the right to collect on $2.2 billion of legal claims from a utility company, Scana Corp., over five years.

Scana benefits because it receives a lump-sum payment for a legal settlement with Toshiba Corp., which bailed on unfinished nuclear reactors in South Carolina, while the hedge funds make a profit because they paid only 92 cents on the dollar for the right to collect.

Perhaps this seemed like a good investment to the hedge fund buyers because the legal settlement, which was reached in July, is relatively risk free. Toshiba will most likely pay.

But the return appears to be shockingly low, especially considering that these funds are locking up money for five years. While it's hard to know the exact parameters of the arrangement, a back-of-the-envelop calculation puts the annualized total return for the investment at less than 2 percent.

At that point, why not just buy 10-year Treasuries, which are yielding about 2.3 percent?

Parking Cash
It's getting so hard to find predictable income that 10-year Treasuries start to look good again
Source: Bloomberg

It's especially surprising because the deal was arranged by the distressed-debt desk at Citigroup Inc., according to the Bloomberg News article. That suggests that the buyers were debt hedge funds that are accustomed to returns well above 10 percent.  Of course, the hedge funds that buy into this have the potential to earn somewhat more because they'll receive hefty payments over the five years from Toshiba that they can immediately reinvest. But still, they don't stand to earn a great deal on the original investment. 

Hit or Miss
Hedge funds that focus on distressed assets have had a spotty few years of returns
Source: HFR

There could be details of this transaction that haven't been disclosed that make it more attractive for the buyers. But it shows how far some are going to earn income in a predictable, uncorrelated way. 

When markets skew so far to one side so as to make investors desperate, that's a recipe for irresponsible decisions. While this particular investment seems harmless enough, albeit not particularly lucrative for the buyers, it shows the degree to which markets have become distorted.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lisa Abramowicz in New York at

To contact the editor responsible for this story:
Daniel Niemi at