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Investment Fundamentals

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5 Insights to Decode Distressed Investing

Distressed investing is a sub-strategy within the realm of alternative investments, often capturing the attention of investors looking for unique opportunities in challenging market conditions.1

For the uninitiated, distressed investing focuses on generating a favorable outcome from investments in troubled companies or distressed assets, with the aim of recovering value.2 However, it's not without complexities and risks.

Here are five things that investors and advisors may want to know about distressed investing:

1. Types of distressed investing

Distressed investing can be broadly classified into two types '“ control and non-control.3 Non-control investments typically involve passive trading strategies where an investor believes a security is undervalued. The aim here is to acquire such securities at a lower cost, hoping for a value appreciation over time.3

On the other hand, control investments involve situations where the investor takes control over the distressed asset or company and actively manages it to increase its value.3 This is a more hands-on approach, often involving significant operational and financial restructuring efforts.3

2. Navigating the specialized landscape

Distressed investing is a highly specialized investment strategy.4 A relatively small number of investment managers are focused on this area, each with their unique investment approach and philosophy.4 These managers often possess deep industry knowledge, specialized skills, and the ability to navigate complex legal and financial landscapes, all of which are critical to potentially unlocking value from distressed assets.4

3. Timing is key

While distressed investing can be an interesting strategy during any period, it often comes into its own during periods of market dislocations and economic downturns.5 These are times when more companies generally face financial hardship, usually leading to an increase in distressed assets available for investment.5

However, it's important to remember that investing in distressed assets is not about taking advantage of others' misfortunes but about providing much-needed liquidity and operational support to struggling companies.

4. Recovering value from mismanaged assets

Distressed investing often involves identifying assets that have been mismanaged and where value can be recovered.1 This requires a keen eye for operational inefficiencies, sub-optimal capital structures, and other sources of financial distress. Generally, distressed investors are not only practiced at identifying such opportunities but also at potentially implementing strategies to turn around the fortunes of these assets.4

5. Risk considerations

It's important to note that distressed investing typically involves a high degree of risk.2 While there can be potential returns, investors may also face significant losses if the recovery of value does not go as planned.2

Additionally, distressed investing often requires a longer investment horizon with limited or no liquidity and can involve significant legal and operational complexities. Therefore, it's essential for investors to fully understand these risks and to work with experienced advisors and investment managers.3

Distressed investing may present intriguing possibilities for those willing to navigate its intricacies.1 While the strategy requires specialized skills and a robust understanding of risk, the potential for a favorable outcome, particularly in volatile markets, continues to attract investors.4

1 https://www.financialpipeline.com/distressed-investing-a-long-term-game-for-high-returns/

2 https://online.hbs.edu/blog/post/distressed-debt-investing

3 https://www.chapman.com/publication-us-distressed-investing-a-guide

4https://executiveeducation.wharton.upenn.edu/thought-leadership/wharton-at-work/2022/04/distressed-asset-investing/

5https://www.wealthmanagement.com/investment-strategies/should-investors-looking-distress-strike-while-iron-warm

Market volatility or lack of liquidity could impair an investment's profitability or result in losses. Factors such as high vacancy, oversupply of the product in the market, increase in interest rates for borrowing loans, bad credit quality of tenants occupying the property, general economic risks such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws and general overall deterioration of the market in which the asset sits, all of which could lead to financial difficulties and impact net operating income and can depreciate the value of the property. These factors, in addition to others including increases in the costs in excess of the budgeted costs, the burdens of ownership of real property, environmental liabilities, contingent liabilities on disposition of assets acts of God, pandemics and other national, regional or local emergency conditions, terrorist attacks, and war may affect the level and volatility of asset prices and the liquidity of investment assets.

This article was written by an employee(s) of Crowd Street and the contents of this publication are for informational purposes only. Neither this publication nor the financial professionals who authored it are rendering financial, legal, tax or other professional advice or opinions on specific facts or matters, nor does the distribution of this publication to any person constitute an offer, recommendation, or solicitation to buy or sell any security or investment product issued by Crowd Street or otherwise. The views and statements expressed are based upon the opinions of Crowd Street. All information is from sources believed to be reliable. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance or success. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Crowd Street assumes no liability in connection with the use of this publication.

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CrowdStreet, Inc. (“Crowd Street”) offers investment opportunities and financial services on this website.

Broker dealer services provided in connection with an investment are offered through CrowdStreet Capital LLC (“Crowd Street Capital”), a registered broker dealer, Member of FINRA/SIPC. Information on all FINRA registered representatives can be found on FINRA’s BrokerCheck. Additional information is available in Crowd Street Capital's Client Relationship Summary (Form CRS).

Advisory services are offered through CrowdStreet Advisors, LLC (“Crowd Street Advisors”), a wholly-owned subsidiary of Crowd Street and a federally registered investment adviser. Crowd Street Advisors provides investment advisory services exclusively to private funds and does not otherwise provide investment advisory services to the Crowd Street Marketplace or its users. Additional information is available in Crowd Street Advisors’ Form ADV.

Crowd Street and its affiliates do not endorse any of the opportunities that appear on this website. Investment opportunities available through Crowd Street are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Diversification does not guarantee investment returns and does not eliminate the risk of loss. All investors should consider their individual factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Private placements are illiquid investments, in that they cannot be easily sold or exchanged for cash, and are intended for investors who do not need a liquid investment.

Performance information presented on this website has not been audited or verified by a third party. By accessing the Crowd Street Marketplace, you agree to be bound by its Terms of UsePrivacy Policy, and any other policies posted on this website. The Crowd Street Marketplace is only intended for accredited investors.
For more information, see Legal Documents and Important Disclosures.

Ⓒ 2025 Crowd Street Ltd. All Rights Reserved

CrowdStreet, Inc. (“Crowd Street”) offers investment opportunities and financial services on this website.

Broker dealer services provided in connection with an investment are offered through CrowdStreet Capital LLC (“Crowd Street Capital”), a registered broker dealer, Member of FINRA/SIPC. Information on all FINRA registered representatives can be found on FINRA’s BrokerCheck. Additional information is available in Crowd Street Capital's Client Relationship Summary (Form CRS).

Advisory services are offered through CrowdStreet Advisors, LLC (“Crowd Street Advisors”), a wholly-owned subsidiary of Crowd Street and a federally registered investment adviser. Crowd Street Advisors provides investment advisory services exclusively to private funds and does not otherwise provide investment advisory services to the Crowd Street Marketplace or its users. Additional information is available in Crowd Street Advisors’ Form ADV.

Crowd Street and its affiliates do not endorse any of the opportunities that appear on this website. Investment opportunities available through Crowd Street are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Diversification does not guarantee investment returns and does not eliminate the risk of loss. All investors should consider their individual factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Private placements are illiquid investments, in that they cannot be easily sold or exchanged for cash, and are intended for investors who do not need a liquid investment.

Performance information presented on this website has not been audited or verified by a third party. By accessing the Crowd Street Marketplace, you agree to be bound by its Terms of UsePrivacy Policy, and any other policies posted on this website. The Crowd Street Marketplace is only intended for accredited investors.
For more information, see Legal Documents and Important Disclosures.

Ⓒ 2025 Crowd Street Ltd. All Rights Reserved

CrowdStreet, Inc. (“Crowd Street”) offers investment opportunities and financial services on this website.

Broker dealer services provided in connection with an investment are offered through CrowdStreet Capital LLC (“Crowd Street Capital”), a registered broker dealer, Member of FINRA/SIPC. Information on all FINRA registered representatives can be found on FINRA’s BrokerCheck. Additional information is available in Crowd Street Capital's Client Relationship Summary (Form CRS).

Advisory services are offered through CrowdStreet Advisors, LLC (“Crowd Street Advisors”), a wholly-owned subsidiary of Crowd Street and a federally registered investment adviser. Crowd Street Advisors provides investment advisory services exclusively to private funds and does not otherwise provide investment advisory services to the Crowd Street Marketplace or its users. Additional information is available in Crowd Street Advisors’ Form ADV.

Crowd Street and its affiliates do not endorse any of the opportunities that appear on this website. Investment opportunities available through Crowd Street are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital. Diversification does not guarantee investment returns and does not eliminate the risk of loss. All investors should consider their individual factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Private placements are illiquid investments, in that they cannot be easily sold or exchanged for cash, and are intended for investors who do not need a liquid investment.

Performance information presented on this website has not been audited or verified by a third party. By accessing the Crowd Street Marketplace, you agree to be bound by its Terms of UsePrivacy Policy, and any other policies posted on this website. The Crowd Street Marketplace is only intended for accredited investors.
For more information, see Legal Documents and Important Disclosures.

Ⓒ 2025 Crowd Street Ltd. All Rights Reserved