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2011 Strategy Outlook
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Chapter 1: Distressed Investing Update
This section provides an update on the analysis conducted in our
2010 Strategy Outlook,
alongwith a discussion regarding the current and future opportunity set, the liquidity of underlyinginvestments and subsequent fund terms and considerations for non-U.S. distressed investing.We believe that the current and future opportunity set for distressed investing is robust.A large wall of forthcoming maturities in both the middle market and large cap space is likely to create opportunities for several years; we believe the middle markets present a particularly compelling area. A distinctive characteristic of distressed investing is that the liquidity is often longer term in duration, requiring longer lock-ups. Finally, as expressed in our
2010 Strategy Outlook
, distressed investing outside the U.S. is often accompanied by additionalprocess-related risks and requires specific expertise pertaining to the particular jurisdiction.
Chapter 2: Rising Rates and Hedge Fund Perormance
If expansive monetary policy were to bring about inflation in developed world economies,how might concomitant rate rises impact hedge fund performance? We analyze performanceacross a variety of different hedge fund strategies in periods of rising rates, as compared toperiods of static or falling rates. We then apply fundamental analysis to the findings to assesswhether there is a sensible rationale to support the thesis that some strategies will benefit orsuffer from a regime shift in rates. Finally, we consider the patterns of those returns and how aregime shift might impact the diversification properties of certain hedge fund strategies, suchas Commodity Trading Advisors and Global Macro.
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