Several US distressed debt asset managers are in fundraising talks with investors to boost their firepower, anticipating that a recession will create more opportunities to snap up and profit off troubled companies’ debt, according to multiple sources. Investment firms including Oaktree Capital Management, GoldenTree Asset Management, Monarch Alternative Capital and Avenue Capital Group, in recent weeks began marketing their plans to institutional investors such as pension funds and endowments, according to eight investors familiar with the matter. “There are lots of people who anticipate we’re headed into a recession and think we should be opportunistic and get in front of this and try and raise the capital now so that we have it in place if and when things get really, really bad,” said one. Distressed debt investors buy troubled companies’ debt at discounted prices, expecting to profit if the company recovers, or, if it files for bankruptcy protection, that they can take control of the company. The funds’ capital-raising efforts were previously unreported. Some investors, though, are sceptical that enough suitable targets exist. They doubt a recession will dramatically boost record-low corporate defaults, especially after large companies fared much better than expected during COVID-19 pandemic shutdowns. Currently, around $78b committed to distressed investments globally are unallocated, according data provider Preqin. Distressed funds returned 15.6pc last year compared with 10.2pc for the broader hedge fund market, and in 2020 they were in line with the industry, with gains of 11.8pc, HFR data shows. To entice investors, some asset managers are offering “capital call” structures whereby investors hand over their cash and start paying management fees only when a target is identified, said two of the sources, all of whom wished to remain anonymous because the talks are private. “Distressed funds are looking for assets across the board, from debt, to crypto and real estate,” said Paul Foley, a partner and chair of the investment management practice at law firm Akerman. Monarch, Avenue and GoldenTree, which specialize in distressed debt and respectively manage around $9.6b, $11.6b and $47b, declined to comment. Oaktree, which has $164b in assets under management, also declined to comment. Its latest fundraising efforts come less than a year after it raised a $16b opportunistic credit fund. Default rates on US junk bonds are at historic lows of around 1pc, but in the event of a recession next year, that percentage could climb to 5pc by the end of 2023 and peak at 10.3pc in 2024, according to Deutsche Bank analysts. S&P Global Ratings’ US “distress ratio” – a measure of risk in the bond market which tends to anticipate movements in US default rates – jumped from 4.3pc in June to 9.2pc in July, its highest level since October 2020.