Investing in distressed companies is set to become even more attractive to hedge funds in 2007 as markets conditions continue to favour a strategy which has outperformed expectations.

Virginia Parker, founder and chief investment officer of hedge fund of funds firm Parker Global Strategies, said during the firm's 2007 Hedge Fund Outlook event that the strategy performed better than expected and that trend will continue into the new year. According to the Edhec Alternative Indexes, distressed strategies have returned 13.4% this year.