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2008 is tipped to be the year for distressed debt, and hedge funds are looking to bolster their teams in anticipation of a surge.

The post-credit-crunch collapse has seen bond prices slump, sparking more interest in the counter-cyclical distressed debt sector as both hedge funds and private equity funds battle for a piece of the action.

HSBC’s alternative investment group told Reuters that the ‘next strategy is distressed debt’ and everywhere from GLC Partners to Oaktree Capital Management, Octavian Advisors, Strategic Value Partners, Lehman Private Equity and Apollo Alternative Assets is either eyeing the market, or hiring.

David Durham, managing director of hedge fund headhunter Durham Consultants, says hedge funds are big on distressed debt hires right now. “They're generally looking for people with three years' distressed debt experience, but for more junior roles will accept people with modelling experience from a corporate finance or leveraged finance background. Price is not an issue for a good person.”

Tom Robson, principal consultant at recruiter Selby Jennings, confirms: “Big multi-strategy hedge funds are bolstering their distressed debt teams, while the specialist funds are also keen to recruit.”

The sticking point for the distressed debt boom, however, is the global default rate. With the exception of last week's addition of £1bn of distressed ABS assets from hedge fund Peloton, distressed investments have been hard to come by. According to Moody’s, the default rate remains at a stubborn 26-year low of 1.1%. The good news is that the ratings agency is predicting an increase to 4% over the course of the year.

With distressed debt still on the cusp of something big rather than in the middle of it, not everyone agrees that hiring has taken off.

Amanda Rajkumar, head of the fixed income practice at search firm The Rose Partnership, says jobs in distressed debt aren’t as easy to come by as some suggest.

“Many candidates are now trying to get into this area from traditional securitization roles and sell-side credit research. However, many hedge funds and private equity houses appear to have fewer opportunities than this time last year. In addition, a number of hedge funds have downsized or closed their credit funds,” she says.