Smart-Stock.net

With the economy in the toilet, savvy and boldness can land investors incredible deals. As we’ve mentioned, one potentially lucrative buy, which takes full advantage of the general skittishness now plaguing banks and investment firms, is the purchase of distressed assets for bottom-dollar prices.

Case in point: investor John P. Grayken’s Dallas-based private equity firm, which earlier this week inked a fantastic deal with investment titan Merrill Lynch. Lone Star paid a paltry $6.2 billion for Merrill Lynch’s distressed-asset mortgage investment accounts. Grayken must be grinning. His firm paid 22 cents on the dollar, netting a package with a face value of $31 billion. Furthermore, Merrill Lynch also agreed to finance 75% of the price, therefore taking responsibility for the majority of any potential losses from accounts that don’t succeed.

Stated in more mundane terms, this is roughly the equivalent of paying $6,200 for a $31,000 car, and then having the seller promise to pay for 75% of all potential future repair costs.

Smarts and aggressiveness serve distressed-asset management companies like Lone Star Funds and Team Nation Holdings well.  Still, as the truism states, timing is everything. By knowing when to exploit the anxieties of the marketplace, these companies can secure deals that would be unheard of during calmer, healthier economic times. Furthermore, many of these distressed accounts can be immensely profitable once the economy regains its footing and the marketplace follows suit.

Lone Star and Team Nation aren’t the only ones engaging in this practice. According to The New York Times, “the business of trading distressed debt is undergoing a renaissance on Wall Street, as money managers and traders search for ways to profit from fears that defaults will keep rising on a wide range of consumer and duplicate loans.”

One caveat: if this practice were easy, more investors would do it. If you decide to allocate part of your investments into this increasingly popular niche area, find a company that specializes in this practice. With their help, your returns could be substantial.

At a time when many people are concerned about what the downturn in the market has done to their investments, smart investors start looking for places to grow their money that doesn’t follow the general downward trend.

Well, they say that crisis breeds opportunity, and so it does. Many of the smartest investors are turning for ways to leverage the changing market by focusing on distressed assets.

The International Finance Corporation (part of the World Bank Group) is one such institution that supports purchasing distressed assets.

“IFC offers a comprehensive package of services in distressed asset investing, including long-term loan financing, equity and mezzanine financing, technical assistance, and advisory services. Our involvement provides comfort to international investors, local partners, and governments, and is often a catalyst for other investors.”

Basically the idea is that large companies will often sell their distressed assets at a rate much below going market price, offering an area that can show substantial gains for people with the experience and know-how to turn such situations around.

With the market facing a downturn in many areas, investing in distressed assets has never looked more promising.