In the wake of some hedge funds pulling back risk, participants at a recent Investing Summit in Asia feel that private equity, boutique firms, institutions, and sovereign wealth funds will begin buying distressed debt (see FinanceAsia.com article). Many of these firms are expected to enter the secondary market for distressed assets given the opportunity to buy them at large discounts. Nonetheless, participants at the conference worried that all the "distress" was not currently in these assets, and that there was no reason to rush into buying them. Ed Altman, Professor of Finance with the NYU Stern School of Business, agrees, and predicts that the assets and the bargains will be available for another 6-12 months.

Hedge fund managers are predicting that distressed securities and global macro strategies will perform best in 2009 (see Reuters article). Unfortunately, the support for each strategy is not overwhelming since only around 20 percent of managers choose distressed securities, along with 17 percent picking global macro. A total of 15 percent picked managed futures, which on whole have gained 18 percent in 2008.

In addition to predicting strategy winners and losers for 2009, over 30 percent of those surveyed expected hedge funds to reduce or eliminate management fees in order to retain investors. An additional 15 percent expected cuts in performance fees, indicating that the 2-20 model may gravitate to a 1-10, or something similar.