The answer to the conundrum is easy: investors are being stuffed by the macroeconomic environment. We all know the reasons why it got so dark, but finding the lights above the exit sign is not so easy.

Alternatives managers at the GAIM conference being held this week at the Marriott Hotel in Hong Kong sought to come up with enlightenment in a panel moderated by Christophe Lee of SHK Funds.

The managers are making money by paying attention to global themes and trying to get ahead of them. They admit that the subprime sectorÆs splatting on the runway didnÆt come as much of a surprise, and yet few had hedges in position against its occurrence.

ôWe have stuck with active trading smaller-scale managers who have run low leverage,ö says Steve Drobny, CIO of fund of funds Drobny Global Asset Management. "You feel impotent in this market û a bit like a sports coach who has put his players on the pitch and now has to sit down and watch.ö

So how is that team performing, and where is the money-shot to be found? Commodities are the flavour of the month, but the hedge-fund managers think that this is already looking like a crowded trade.

You can always regulate futures markets, but physical commodities have gone into unabashed March Madness. Rice was trading at $780 per tonne at the end of last week, having risen in price by 30% from Wednesday to Thursday alone. Asian countries today are worrying about how to feed their people, and staples are being hoarded. We are headed towards a bunker mentality.

"Default rates on recent private placements will be 25% this year,ö says Eugene Kim, CIO of Tribridge Investment Partners, which runs a $160 million fixed-income fund. ôMany of these will come out of Indonesia and China. Bankruptcy law in China is opaque, and the Indonesian courts are just the same as they always were." He says the fund has managed to generate performance by reducing the directional bets in its portfolio, investing based on bottom-up fundamentals and sticking with liquid instruments.

Tribridge is running gross leverage of 3%-3.5% and confirms it underwent an increase in margins from its prime broker in the fourth quarter of 2007. It is seeing repo tenors now mainly on a overnight or weekly basis (compared to six-month tenor readily available last year), and related repo margins at levels 25% more restrictive than 2007.

The panel pinpointed some signs of life in Japanese Reits and banks unloading property at good prices.

ôIf you can wait six to 12 months, the risk/reward [ratio] is in your favour right now,ö says Michael Garrow of Blackstone Group, which is currently focusing on macro, fixed-income arbitrage and tactical equity long/short, the latter for example trading around earnings announcements. ôWe are in a holding pattern for long-term latent asset-holding strategies, and it is still too soon to buy, say, Mothers in Japan, or mid-caps in India," he adds. "We like people trading around liquidity.ö

So, if there is a single secret magic word to sum up hedge fund managersÆ 2008 great hope for Asia, then that one magic word (possibly two), heralds the return of the great unspeakable: ôdistressed debtö.