By definition, an investment aims to generate economic benefits. Unfortunately, this is sometimes only theory, while in practice an asset in our investment portfolio may be nothing more than frozen capital with no prospect of profit. Capital which, with the right approach, could instead be put to work in projects with significantly higher growth potential.

Terms such as “distressed,” “illiquid,” or “non-productive” should be a clear warning signal for an investor. This is a broad spectrum of assets—for example, corporate bonds of companies undergoing restructuring, minority stakes in private companies with no clearly defined exit options, illiquid private equity funds that have made no distributions for years, non-performing loans (NPLs), or private receivables where debtors lack the capacity to service them regularly.

Their common denominator is that, although they formally exist in the portfolio, in practice they lack liquidity and generate zero or negative returns. In many cases, the costs of holding them—such as taxes—exceed the income they generate. These are investments that are difficult or even impossible to sell at a good price (for example, minority stakes in private companies), often due to the lack of an active market, a limited number of potential buyers, or legal restrictions. Finally, these are investments lacking transparency and control—the investor simply does not receive regular, reliable information or financial reports regarding the held asset.

Keeping capital frozen in such distressed assets generates a high opportunity cost, while those funds could be working in projects with far greater growth potential and a transparent structure.

The Best Scenario – Strategic Action

Past experience may suggest doing nothing with the asset—“so as not to make things worse,” waiting because “I’ve already invested so much,” or hoping that “the situation will improve and losses will be recovered.” These are, however, merely psychological barriers that contradict investment logic, which should prompt action—action that not only minimizes losses but, above all, maximizes recovered value and enables its effective reallocation.

Such action should be planned and well thought-out, based on solid analysis rather than impulsive decisions. It is certainly not about selling as quickly as possible—this often fails to deliver the expected result and may even generate losses, for example due to a limited secondary market or the activity of specialized distressed-debt funds, which frequently offer to purchase assets at only a fraction of their nominal value.

What is required is a transformation that not only enables the recovery of significantly more value, but also turns the problem of an illiquid asset into the foundation of a new, stable investment.

A Multi-Stage Process – Strategy Matters

Transforming a distressed asset should take the form of a disciplined, multi-stage process. Legal, financial, and operational expertise are essential, which is why it is worth entrusting this process to professionals who, with a cool but expert eye, will guide it through all stages, ensuring continuity in this complex process and peace of mind for the investor.

The foundation is a detailed analysis of the initial situation, which should go far beyond a simple valuation. Legal and financial analysis makes it possible to determine the real recoverable value and identify negotiation levers. The outcome is the development of several action scenarios and the potential financial results they may deliver, along with the probability of their realization. With such an analysis in hand, one can proceed to action aimed at recovering the maximum possible value—whether in cash, equity, or other assets.

What defines the strategic nature of the transformation process, as opposed to ordinary debt collection, is above all what happens to the recovered capital. The key is the immediate planning of its reinvestment into a new, carefully selected project. Returning to the investor’s starting point—holding an illiquid, hard-to-sell asset with no control—it is worth choosing something characterized by stability and real profit potential. Such assets may include real estate, particularly in the premium segment. Tangible assets, rather than mere accounting entries, significantly reduce investment risk—especially given the dynamic development of this sector and the opportunity for stable rental income. Historically, properties in prime locations have been one of the most effective hedges against inflation, as both rents and asset values rise along with the general price level.

A restructuring model based on real estate, where the illiquid asset may account for up to 25% of the property’s value, is an alternative to traditional value-recovery methods and an opportunity for investors to enter the real estate market without committing their own funds in full.

The commentary was authored by Joanna Adamska, restructuring and asset-conversion expert, CEO of AGP Group.

Translated from Polish. 

(WBJ)