Distressed Securities and Liquidity Concerns

CFA Level III Portfolio Management
#1

In one of the problems, they asked us to identify which strategy meets the following requirements.

low to moderate levels of leverage, idiosyncratic alpha, long-biased, and no concerns about liquidity.

The answer was distressed securities.

But how is there no concern of liquidity with distressed securities? I mean are they not typically highly illqiuid as it takes some time to regain the value of the company?

#2

There is.

Sounds as though they got it wrong.

You should submit an erratum. Here’s the link.

1 Like
#3

thank you. I will submit the request

#4

Liquidity is also a main concern in distressed securities since this strategy often implies selling short the equity of the target which can have a high execution risk considering that most long equity funds are out of these kind of securities.