The idea of investing in distressed credit markets may sound daunting—it requires expertise in evaluating companies whose balance sheets are at risk. But some funds, such as the Pender Credit Opportunities Fund, see opportunities where others see trouble.
Pender’s view is that in a global economy where the only certainty seems to be that there is likely to be more uncertainty, it can be worth considering the potential upsides to often-overlooked investment areas like distressed credit.
“We invest where others step away – in companies that face temporary balance sheet stress but have tangible paths to recovery,” says Parul Garg, associate portfolio manager at Pender and a specialist in distressed credit investing. “We have seen the potential for higher risk-adjusted returns in areas where capital is scarce,” she continued. The focus is on deeply discounted, publicly traded companies that are stressed or distressed.
“These companies’ bonds often trade well below par, reflecting market pessimism in their balance sheets,” she says. “Yet corporate stress can also be a reset – businesses have the chance to restructure, recover and generate outsized returns in the process for disciplined, patient investors.”
Details, details
The devil is in the details, says Stan Manoukian, founder and chief executive officer of Independent Credit Research, which analyzes these types of investment opportunities. It requires considerable skill and experience to determine what kinds of distressed assets should be considered investment-worthy, he explains.
“For example, there is a difference between distressed and stressed opportunities,” he says.
Generally, a distressed asset is one where there is roughly a 50 per cent chance that the distressed company will wind up in bankruptcy, he says.
“Companies that fall below that 50 per cent line are in a position where there is a significant probability that they’ll end up in a bankruptcy court,” he explains.
“That’s the enhanced risk that those purchasing distressed credit assets face. The outcome of the debt that the investors have acquired may completely annihilate this debt [leaving nothing for the investors]. On the other hand, it may be equitized,” he says.
If the debt is equitized, parts of the bankrupt company may be sold off and proceeds distributed to creditors, or the company can be reorganized and get back on its feet, Manoukian adds.
Stressed companies
“Stressed companies are different. These are companies that are having difficulty managing current debt,” he says. They could be companies in certain sectors that are hard hit by economic conditions such as tariffs, or they could simply be firms that are poorly managed,” he says.
“In any case, there’s often a decent chance that a stressed company will overcome its problems and outperform its balance sheet without having to file for bankruptcy,” he says.
“We consider stressed companies to be those whose corporate bonds trade at 500 basis points above Treasury rates [the rates that governments pay investors to borrow money through treasury bills or bonds],” Garg says.
“Distressed companies would be those that trade at over 1,000 basis points above Treasury,” she adds.
Given the enhanced risk posed by distressed and stressed assets, investors seek returns in the range of 15 per cent, Manoukian adds. “When investors are looking for such ‘spicy’ returns, they don’t just look for companies that are in trouble; they also look for redemption opportunities—the possibility of a turnaround,” Manoukian says.
And we know that family offices, specifically, are on the hunt for good returns. According to a recent RBC survey conducted from April to August 2025, where they asked family offices to indicate their expectations for full-year investment returns, the average expected return for 2025 is only five percent, with 15 per cent of respondents expecting a negative outcome. Overall, family offices are feeling much less bullish than in 2024 when the average expected return was 11 per cent and almost no one anticipated a negative return, according to the survey.
Pender Credit Opportunities Fund
One distinctive feature of the Pender Credit Opportunities Fund is that it invests solely in public companies’ fixed income and not private credit.
“By focusing on public fixed income, we have more liquidity than we would have with private credit; we can buy and sell more easily on the open market,” Garg says.
“Public fixed income is also more transparent—there’s more information that’s publicly available, so it’s easy to see the company’s financials and relate the fixed income prices to the company’s market value. The assets we invest in are tuned constantly to what’s happening in the market,” she adds.
Investing in distressed credit through a fund like the Pender Credit Opportunities Fund should be of interest to family offices and high-net-worth investors who have longer time horizons; investments are locked in for two years to recognize that meaningful restructurings and recoveries take time.
“The fund offers transparency and tax efficiency. Most of the returns are capital gains rather than income, which eases the tax burden of fixed income investment,” Garg says.
The Pender Credit Opportunities Fund is nimble and managed by the Pender fixed income team which oversees assets of over $3 billion in a range of credit strategies, with ten years of experience in managing stressed and distressed credit. That scale brings institutional depth, while the fund’s focused size allows it to move quickly in less efficient corners of the market.
But both Manoukian and Garg agree that distressed credit is an opportunity to be considered by those in a position to do so.
“Distressed credit has actually boomed over the last 10 years,” and in today’s turbulent, tariff-scarred economy, “there are lots of troubled companies seeking investment to help them recover and profit,” Manoukian says.
Often, investors focus on what’s easy to see — the path straight ahead. The Pender Credit Opportunities Fund, on the other hand, takes a different route. It is designed as a return enhancer, built to uncover opportunities that don’t show up on most people’s radar. These are corners of the credit market that are complex, often misunderstood, and, in many cases, out of reach for most investors. That same complexity is where inefficiencies — and rewards — tend to hide.
In Canada, only a handful of managers venture into this space. Pender has been doing it for over a decade, with a team and infrastructure forged through years of building our flagship credit strategy. The team uses that foundation to uncover value where others can’t — finding opportunities where most aren’t even looking.
This story was created by Canadian Family Offices’ commercial content division on behalf of PenderFund Management, which is a member and content provider of this publication.