Brian Chappatta, Columnist

Distressed-Debt Hedge Funds Have Nowhere to Go

After a resurgent 2020, the riskiest corporate bonds look squeezed to their limits.

February 4, 2021 at 11:00 AM UTC

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

Squeezed out.
Photographer: Donald Miralle/Getty Images

Provide news feedback or report an error

Site feedback:

Take our Survey

This article is for subscribers only.

While they’re not the type of hedge funds that have been embroiled in a public battle with the Reddit crowd, distressed-debt investors are quietly having a reckoning of their own.

By all accounts, funds that place bets on the hardest-hit companies and segments of the economy had a fantastic 2020, bolstered by aggressive stimulus from both the Federal Reserve and the U.S. government. Distressed-debt funds returned an average of 13% last year, according to Hedge Fund Research Inc., and Bloomberg News reported last month that funds run by firms such as Knighthead Capital Management, Diameter Capital Partners and Apollo Global Management posted gains that were even higher, in some cases approaching 50%. A $2.8 billion fund from KKR & Co. raised at the height of the Covid-19 crisis returned 52%. A $3 billion credit fund that Centerbridge Partners began investing around the same time soared by an annualized 90%.