There will be more chances to invest in companies going into or emerging from bankruptcy because of increasing losses at Wall Street banks and a slowing U.S. economy, wrote Daniel Arbess, 47, New York-based Xerion's founder and a Perella partner. Lending opportunities will also rise.

Arbess wrote that he expects the present distressed-credit cycle to be deeper and longer than the preceding one in 2002, since companies laden with debt will have to contend with a moribund U.S. economy, a smaller financial system with much tighter credit underwriting standards, and a globally induced cost-price squeeze that erodes their profitability.

In June the Xerion fund added new wagers that the debt of transportation and media companies would decline. The fund is also looking to provide financing to companies unable to get loans as Wall Street cuts back on providing debt and to investors forced to sell assets.

The fact that we have avoided recent losses in credit and have fresh powder makes us liquidity providers to both companies unable to obtain conventional financing, and to investors looking to raise liquidity themselves by selling what they can, Arbess wrote in the letter.