He agrees the premium is currently in liquidity, but believes that the next distressed cycle is not far away. “We figure it will take investors six months to do their due diligence on us, by which time we should be getting into the swing of the next distressed cycle,” he says. “There will short-term liquidity opportunities, such as in senior secured bank debt, for the next 12 to 24 months” Stewart says. “But most of your money is made in the end phase of a distressed cycle when companies are restructuring.”

He cautions that the best credit managers are likely to reach capacity quickly, and investors waiting for the perfect timing could miss out. The underlying managers in the Mellon Recovery Fund specialise in different regions, sectors, capital structures, and the way they execute their exposures. Stewart says that while it might suit some funds to extend its existing mandates, hedge funds’ flexibility to go long or short gives them an advantage over the traditional bond managers. He adds that outsourcing manager selection to a fund of funds is an obvious solution for funds unable to do the due diligence on the proliferation of new managers.

Whether it is for the short or the long term, or there is enough skill to go around, the consensus is that opportunities abound.