Hedge funds are joining investment banks in bulking up their teams in London – and even opening operations there – to handle what they expect to be a growth spurt in European distressed debt, The Times of London reports. “Over the past nine months we’ve seen more interest from U.S. hedge funds in the European distressed debt sector, and we envisage this trend continuing,” Terry Minkey of Bear Stearns told The Times. The reason for the impending surge, says the paper, is an expected rise in inflation and interest rates that would result in a credit crunch, a familiar scenario for hedge funds, which already dominate the distressed-debt market in North America with an 82% share. “It is a matter of time until the [credit] crunch comes,” one senior banker told The Times. “It will be quite painful because there are lots of companies that have borrowed too much money.” There are already about 18 HFs specializing in distressed-debt camping out in London, including Appaloosa Partners, Cerebrus Capital, Apollo Management and Strategic Value Partners, as well as newcomers Angelo Gordon and King Street.