Permal, the hedge fund investment arm of

US firm Legg Mason, is to launch a $500 million vehicle to take advantage of distressed investor selling.

Permal Hedge Fund Opportunities, scheduled to launch on 1 November 2008, will make discounted secondary market investments into existing hedge funds. 

Permal said the vehicle is not a distressed debt fund but is designed instead to capitalise on discounts as distressed investors are forced to exit hedge funds.  As reported in The Financial Times, investors in hedge funds are selling their holdings at a discount to bypass withdrawal restrictions as the world clamours for cash.  Permal Hedge Fund Opportunities Limited will aim to provide a diversified portfolio of such investments, in order to provide an enhanced risk / return profile for investors.

Isaac Souede, chairman of Permal Group, said:  “The pain that we are seeing in this illiquid market has created extraordinary investment opportunities for long-term capital. Not only are we seeing distressed buying opportunities in equities and bonds, but also directly into the hedge fund market. We believe this is an unprecedented opportunity to invest with some of the world’s best hedge fund talent at discounts to already distressed-market-driven net asset values.”

Permal, which has some $34 billion assets under management, was established in 1973 and subsequently acquired by US-listed Legg Mason in 2005.