Investors fear missing out on distressed debt

* Investors don't want managers to sit on cash

* Distressed debt environment "best in a lifetime"

* Redemptions prevented some funds from deploying cash

By Martin de Sa'Pinto

MONACO, June 18 (Reuters) - Some distressed-debt investors are urging fund managers to be less cautious and to deploy cash quickly before opportunities begin to disappear.

Distressed-debt funds, which invest in corporate bonds paying more than 10 percentage points over Treasuries of the same maturity, raised plenty of money last year, but managers were reluctant to make investments as the global economy continued to deteriorate.

"Some very well-known hedge funds were sitting on 50 percent cash at the beginning of the year when they should have been buying," said Maria Boyazny, managing director at private investment company Siguler Guff.

"We're in the biggest distressed cycle since the last generation -- we don't want someone sitting on our cash in the best investment environment we're going to see in a lifetime," she told attendees at a distressed debt session at the GAIM alternative investment management industry conference in Monaco.

Distressed-debt players who rushed in early took heavy losses last year but have started to make gains this year. According to the Credit Suisse/Tremnont Hedge Fund Index, distressed strategies are up 4.82 percent in the year to end-May.

Boyazny said some funds had been compelled to hold cash as they prepared for the flood of redemptions that overwhelmed the hedge-fund industry at the end of last year, but others had no excuse for not buying while prices were low.

"I don't want someone to take the capital and charge fees and then hold cash for a long time as assets are deployed," said Boyazny. "In this period there are enough opportunities to put money to work over the next 12 months."

"MOVING TARGET"

Alberto Maria Finali, managing director of private investor Symposium Capital Management, said another reason for managers to move quickly was that plenty of funds were looking to buy in.

That meant while opportunities would still exist over the next two to three years the number of possible deals would be volatile and liable to shrink rapidly, Finali said.

"The size of the distressed debt universe is a moving target. In November 80 percent of the Morgan Stanley High Yield index was trading at distressed levels. Now it's down to 50 percent," Finali said.

Industry executives told Reuters this week that banks wary of stomaching further losses are loath to sell bad debt at a discount. That has left distressed-debt investors, who had been hoping for a flood of bargain assets, empty-handed. [ID:nLG807368] (Additional reporting by Claire Milhench; Editing by Greg Mahlich)