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• Richard M. Bendix, Jr.

Lipper Hedgeworld & Schwartz Cooper “2007 Insolvency Survey” Reveals “Catch-22” Facing Hedge Funds Amidst Credit Crunch

(Chicago) – Today’s hedge fund managers are facing a modern day “Catch-22” in trying to balance the risks of investing in financially troubled companies with the pressure to capitalize on potentially lucrative investment opportunities, according to respondents of a national survey conducted by Lipper HedgeWorld and law firm Schwartz Cooper.

The survey, measuring the attitudes and perspectives of 100 leading hedge fund managers, reveals that despite the overwhelming expectation that financially troubled companies will “become riskier” in the next 12 months, 63 percent of hedge fund managers report having at least some percentage of their portfolios invested in financially troubled companies.

In addition, over half of the hedge funds responding to the survey expect lending activity to insolvent companies will increase during the next year, while almost 40 percent of hedge fund managers expect to purchase assets from a financially troubled company within the next year.

Meanwhile, 83 percent of respondents claim they are aware of their legal rights should their portfolios experience an insolvency issue and nearly one in three hedge funds has also consulted a turnaround or workout professional regarding positions in its portfolio.

“Hedge funds are clearly concerned about the potential for insolvency issues to affect their portfolios,” said Richard Bendix, head of Schwartz Cooper’s Bankruptcy, Insolvency & Creditors' Rights practice and co-director of the survey.  “Though the majority of hedge funds have briefly assessed the risks and likelihood for bankruptcy to impact their portfolios, most are not prepared for the costs, delays and uncertainties of bankruptcy proceedings which could turn them into the owners of a company.”

Looking ahead, respondents also expect that the housing, energy, automotive and construction sectors will present the most attractive debt investment opportunities in the coming year.

“Despite the current turmoil in the credit markets, a relatively small but active number of hedge funds continue searching for alpha via investments in insolvent companies,” added Chris Clair, managing editor for Lipper HedgeWorld and co-director of the survey.

For a complete copy of the results for the Lipper HedgeWorld & Schwartz Cooper “2007 Insolvency Survey,” please contact Meghan Andalman at 312.516.4476 or mandalman@schwartzcooper.com. 

About Schwartz Cooper

Schwartz Cooper Chartered provides practical, efficient legal solutions across a range of disciplines, including banking and finance, corporate, franchise and distribution law, commercial real estate, litigation, bankruptcy, tax and estate planning, labor and employment, securities, technology and intellectual property. Clients include middle-market public and private companies in industries ranging from manufacturing to retail; local and national banking institutions; investment funds; and commercial real estate owners, developers and lenders. For more information, please visit www.schwartzcooper.com.

About Lipper HedgeWorld

HedgeWorld, the leading information portal for the global hedge fund community, offers its members access to unparalleled content in print and electronic formats, including industry news, research and events. HedgeWorld's community spans the globe, with more than 55,000 registered members in 125 countries.  For more information, please visit www.hedgeworld.com

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