Dalton Investments LLC, a Los Angeles-based hedge fund with 70 percent of its assets in Japan, is starting a ¥50 billion fund that will invest in U.S. distressed assets.

The fund has raised about ¥10 billion from U.S. investors and will begin marketing in Japan by the end of March, said Junichiro Sano, chief executive officer of Dalton's Japan unit.

Taking advantage of low prices, it will invest in bonds sold by U.S. companies that once had AAA ratings but have since been downgraded below investment grade, and aim to profit from the high yields on the debt.

Dalton, cofounded by James Rosenwald and Steven D. Persky in 1998, aims to raise its assets under management after they fell 23 percent to about ¥100 billion this year amid the biggest financial market losses since the Great Depression. Global financial institutions have posted about $989 billion in writedowns and credit losses linked to the U.S. mortgage market collapse, pushing corporate bond yields higher.

"There is quite a big interest among Japanese institutional investors in distressed asset investments," Sano, 53, said Friday. "The Lord giveth, and the Lord taketh away."

The fund is looking to invest in corporate bonds that are trading at 40 cents to 45 cents on the dollar, Sano said, declining to elaborate on potential investment targets.

The average junk bond price has fallen 37 cents to 55 cents on the dollar this year, according to Merrill Lynch & Co. index data, with average yields on the debt at 22 percent.