The current "higher for longer" interest rate environment has created attractive opportunities for credit hedge funds that focus on distressed debt, and boosted profits this year, according to a report by The Financial Times.

Higher central bank interest rates have put pressure on some small and medium-sized corporate borrowers, forcing them to offer significantly higher rates to tempt potential lenders to take on their riskier credit.

Existing riskier debt has also become cheaper as result, which has increased yields.

The report cites the Eurekhedge distressed debt hedge fund index as revealing that credit hedge finds are up an average of 5.9% so far this year making it the best-performing strategy of the year.

Standout performers in the space include Richard Seitz's $4.9bn VR Capital, which chalked up a gain of 19.2% by the end of the July, making it the one of best performing funds so far in 2023. Jimmy Levin’s Sculptor Credit Opportunities fund meanwhile, which manages $1.4bn in assets, had returned 8% by the end of August.