Distressed debt became popular at the end of last year as a result of the credit crisis. America was among the first for investment managers to set up hedge funds that trade distressed debt to take advantage of marked-down loans, followed by Britain and Hong Kong. There is more activity in fund-raising in the private equity sector especially for distressed debt. Some analysts believe that entering this sector may be too late because the best opportunities are disappearing. And some believe that there are more potential losses stemming from commercial mortgages, European markets and mid-size US banks. Corporates are marking down the value of their loans which attract distressed debt funds and have been busy raising capital recently. But this has not stopped a growing number of private banks that are looking to gaining exposure through hedge funds that are active in trading distressed debt or other distressed assets. Ivan Leung, chief investment strategist in Asia for JPMorgan Private Bank in Hong Kong, said: 'We have increased our focus on distressed debt since the end of last year, especially on mezzanine debt and hedge funds that are active in trading distressed assets and other credit specialists. We have been even buying high yield bond funds.' Private banks such as Credit Suisse and JP Morgan remain prudent about advising on exposure to distressed debt, even though the expected return on investing in distressed hedge funds and private equity structures could be more than 10 per cent. ABN Amro prefers funds based on their strategy types, according to Stefan Ho, ABN Amro's Singapore-based vice-president and product specialist for structured products. 'As a whole, we avoided products such as collateralised debt obligations which were sold by many banks last year. It's the same thing with distressed debt. 'We're very careful about recommending these and recommend instead more diversification via hedge funds. We want to make sure the funds of hedge funds that have positions in these distressed assets are diversified enough and have good track records in trading these,' he said.