Old Pro Plans to Clean Up When Market Crumbles

He could put as much as 10% of his own money in the venture, which is going to begin raising cash in mid-July with an eye toward getting up and running some time in the fall. McDermott resigned from UBS last week and plans to start work at Stony Lane after Independence Day.

Heisley wouldn't go as far as to predict when the collapse of the market might happen, but he said he wanted to be ready to collect the pieces. "There's just people out there writing deals that don't make sense," he adds.

McDermott says there's about $2.5 trillion in combined leveraged loans and high-yield debt in the market, and using average default rates, he estimates about $90 billion of the total could end up distressed.

Distressed-oriented hedge funds are capable of tackling $80 billion in deals, McDermott speculates. However, many of the investment vehicles also will find themselves under water should the markets collapse, because those funds will have to sell the debt securities they already own at a loss and attempt to raise fresh capital.

"If we just hit the average[default rate], we are going to have plenty of great opportunities," McDermott says. "I think this is a fantastic opportunity to put capital to work," he adds.

Heisley, a former computer salesman, made the biggest bet of his life a few decades ago when he sold his house for $150,000, then took out loans and purchased the industrial company Conco. Now, his net worth is about $1 billion, according to Forbes.