Which characteristic describes the performance of distressed debt hedge funds?

The performance of distressed debt hedge funds is often characterized by their ability to invest in the securities of companies that are in financial trouble or undergoing bankruptcy proceedings. This investment strategy generally involves taking on a higher level of risk, but it can also yield significant returns if managed correctly. Therefore, the assertion that distressed debt hedge funds have excellent Sharpe ratios with high returns captures the potential for higher risk-adjusted returns associated with investing in distressed assets.

The Sharpe ratio, which measures the performance of an investment compared to a risk-free asset, adjusted for its risk, is particularly relevant in this context. If distressed debt hedge funds are able to successfully navigate the complexities of investing in troubled companies, they can achieve returns that are not only substantial but also favorable when adjusted for the level of risk taken. This highlights the capability of these funds to generate high returns in correlation with a well-structured risk management approach.

In contrast, high volatility, poor returns, low correlation with equities and bonds, and characteristics such as negative skewness with low kurtosis do not accurately reflect the typical performance profile of distressed debt hedge funds under optimal conditions. While investing in distressed debt can be inherently risky and volatile, the potential for substantial returns justifies the role of these funds within a