One of the most renowned buyout firms is working with a Chinese firm to go after distressed debt opportunities in China.

It is an ill wind, they say, that blows no-one any good. While decelerating growth in China has rattled markets, an expected rise in defaults in the Asian giant has prompted a private equity titan to focus on the distressed debt space.

Last week, KKR & Co teamed up with China Orien Asset Management, the state-owned firm, to invest in distressed assets in China.

Also last week, Hedge Fund Research president Ken Heinz told this publication that distressed debt strategies should be worth attention this year, and should be raising funds on the road. Such strategies have not fared particularly well in recent years, however.

"The investment and asset management platform will focus on opportunities in China across a range of returns, benefiting from the unique capabilities and strengths of each of the partners," KKR & Co said in a statement.

"The platform brings together COAMI and COS Capital's unique combination of deal sourcing capability and China asset management expertise, and KKR's investment experience and network around the world and in China," it said.

China Orient Asset Management was set up to dispose of bad loans in the aftermath of a banking crisis in the late 1990s. Non-performing loans in China have reached $180 billion (at end of September, 2015), which is the highest level since the 2008 financial crisis, KKR & Co said.

"China's real estate market has approximately $3.1 trillion of outstanding debt, making up approximately 16 per cent of the total lending market in China, predominantly in the form of commercial bank loans, trust schemes and wealth management plans, according to the People's Bank of China," it added.