The $18 billion Australian Reward Investment Alliance (ARIA) has set aside up to 1 per cent of its total assets to a fund which will progressively identify distressed debt opportunities.

ARIA chief investment officer Alison Tarditi said the fund, whose manager she would not name, would act as a “;recession hedge”; for the ARIA portfolio. “;The money only goes to work as the opportunities arise. Until they do, we can be exposed to other things,”; she said. Tarditi pointed to the recent bailouts of Citigroup and UBS (by sovereign funds from Abu Dhabi and Singapore, respectively) as a sign that holders of investable capital saw long-term value in pools of currently distressed debt. ARIA has also recently been reversing underweight positions in US large caps, and will continue to remain unhedged in emerging markets to take advantage of the “;regime shift’ currently putting upward pressure on developing country currencies. It may be a “;little too early”; to invest in the burgeoning ranks of distressed debt funds, according to the founder of fixed interest boutique Kapstream Capital, Kumar Palghat. “;They’re really an options play. They’re buying assets at 30 cents in the dollar and hoping to triple their money as the system recovers, but they’re going to lose all of their capital on some of them,”; Palghat said, adding he did not believe it was clear enough yet who the winners and losers would be. Goldman Sachs JBWere Asset Management was recently seeking Australian institutional support for a global distressed debt fund, while a PIMCO spokesperson said distressed debt offerings it launched were snapped up by US-based clients.

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