The $1.5bn in Carlyle Group's dedicated distress fund is dwarfed by the near $90bn in private equity funds that the firm has at its disposal. But the returns can be considerably higher.

Whereas buy-outs might generate a 25 per cent internal rate of return over three to five years, distressed investments can yield 40 to 60 per cent within two years. "We have chosen to work in this asset class because we like the risk/reward ratio," says Brett Wyard, co-head of the Carlyle Strategic Partners fund.