Credit hybrids go into high gear

Wed Jul 30, 2008



Structures that resemble private equity funds are attracting big bucks, as managers think the debt market will take years to turn around

By Steve Rosenbush and Michelle Celarier

Last year's credit meltdown had hedge fund managers salivating at the prospects of big returns on roughed-up securities, many of which seemed to be trading way below their intrinsic value. But with the situation more dire than usual, it was clear the payoff seemed many years away, and a typical distressed-debt hedge fund with quarterly, or even yearly, liquidity wouldn't suffice. Nor would a side pocket be able to absorb all the paper. So as part of an ongoing experiment with private equity-type fund structures, many turned to so-called hybrids: closed-end funds with long lockups that require investors to wait for years before they receive a return on their investment.

While new hedge fund launches have hit a roadblock (see "New Fund...

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