In a distressed investing strategy, which element is typically included?

In a distressed investing strategy, the focus is primarily on identifying and capitalizing on opportunities within companies that are experiencing financial difficulties or are undergoing some form of distress, such as bankruptcy or restructuring. This often involves investing in both the equity and the debt of these struggling companies.

Investing in equity of distressed firms can provide opportunities for high returns if the company successfully turns around, while purchasing distressed debt can be even more lucrative, as investors might acquire it at a significant discount to its face value. This dual approach allows distressed investors to leverage potential recoveries from both angles, maximizing their chances of profitability as companies restructure and recover from their challenges.

The other options presented do not align with the core principles of distressed investing. For instance, investing in top-tier companies typically involves strategies focused on stable, high-quality firms rather than those in distress. Speculating on high-risk derivatives diverges from the traditional distressed investing focus and involves different risk profiles and investment dynamics. Lastly, a focus solely on liquid assets doesn't capture the essence of distressed investing, which often deals with illiquid assets, especially those in financial trouble.