Responses to Challenges Facing Credit Opportunities Hedge Funds: How to Stay Above Water in Tough Times
Hedge Fund Law Report
A significant number of credit opportunities hedge funds, which typically invest primarily in leveraged loans and other credit, were launched in the past year or so, hoping to take advantage of market volatility and decreased liquidity. However, these funds are running into trouble as expectations have failed to keep pace with economic reality. Banks have tightened credit and collateral standards for hedge funds that invest in risky assets, and fund investors have been redeeming fund investments in record amounts. This article details specific strategies that funds have used to stay above water when faced with the prospect of violating covenants in their loan documents – lessons that can be applied to hedge funds facing challenges across various investment strategies.