Key Takeaways
- • Arini Capital Management's flagship hedge fund is down 32% year-to-date after a 19.7% loss in October, driven by heavy exposure to CCC-rated corporate debt that the firm acknowledges it underestimated.
- • Arini has re-underwritten its five largest positions, which make up roughly two-thirds of net asset value, trimmed holdings, and cut gross leverage to the lowest level since early 2022.
- • The fund drew $389 million in inflows over the past week as part of a $1.5 billion fundraising effort, even as performance deteriorated.
- • The fund has begun offloading positions in large speculative-grade companies, with Pacific Investment Management Co. and Oaktree Capital Management among prospective buyers.
- • The fund, which grew from about $1 billion at its 2022 launch to a $21.7 billion peak, is now at the center of a broader reckoning in high-yield credit.
Summary
Arini Capital Management's flagship hedge fund has lost 32% so far this year, including a 19.7% decline in October alone, according to the firm's investor letter as described in press reports. The London-based credit specialist, founded by former Credit Suisse trader Hamza Lemssouguer, had seen year-to-date losses of about 26% as of Oct. 23, indicating that positions deteriorated further in the final days of the month. In the letter, the firm said the fund "underestimated" the dislocation in CCC-rated debt, which accounts for the bulk of its exposure and left the portfolio highly correlated.
The firm attributed the recent pressure to technical factors rather than fundamentals, citing collateralized loan obligations nearing their limits on buying CCC-rated debt and "targeted shorting at uneconomic levels." The losses also stem in part from wagers on weak-rated borrowers, a trade squeezed by higher global interest rates, elevated energy prices and the disruptive threat posed by artificial intelligence. Among the credits in the portfolio are telecom operator Altice International, internet provider Brightspeed and luxury automaker Aston Martin, all of which have come under financial strain and seen their bonds weaken.
Arini has re-underwritten each of its five largest positions, trimmed holdings, and pushed gross leverage to its lowest level since early 2022. The letter said the firm re-examined asset coverage, liquidity, recovery scenarios and investor protections for each top holding, and that "the core theses remain unchanged, with some catalyst timelines accelerating and some extended." The firm argued it has the structural duration of capital to hold investments until catalysts play out, and said it intends to build in more diversification.
Despite the drawdown, the firm has continued to raise capital. Arini took in $389 million over the past week as part of a $1.5 billion fundraising effort. Arini has already sold some positions in large speculative-grade companies, and dealers have been sounding out buyers on more, with interest from Pacific Investment Management Co. and Oaktree Capital Management. Sales so far have centered on the fund's more liquid and better-performing assets. A representative for the firm declined to comment.
The reversal is stark for a firm that ranked among Europe's fastest-growing hedge funds. Launched in 2022 with about $1 billion, Arini expanded into a $21.7 billion credit-trading platform before the current turmoil. The decision to cut leverage while still raising new money signals a bet that the volatility is temporary rather than a verdict on the underlying credits, and whether limited partners share that view will become clearer as the $1.5 billion raise proceeds and the fund works through remaining positions offered for sale.
The firm attributed the recent pressure to technical factors rather than fundamentals, citing collateralized loan obligations nearing their limits on buying CCC-rated debt and "targeted shorting at uneconomic levels." The losses also stem in part from wagers on weak-rated borrowers, a trade squeezed by higher global interest rates, elevated energy prices and the disruptive threat posed by artificial intelligence. Among the credits in the portfolio are telecom operator Altice International, internet provider Brightspeed and luxury automaker Aston Martin, all of which have come under financial strain and seen their bonds weaken.
Arini has re-underwritten each of its five largest positions, trimmed holdings, and pushed gross leverage to its lowest level since early 2022. The letter said the firm re-examined asset coverage, liquidity, recovery scenarios and investor protections for each top holding, and that "the core theses remain unchanged, with some catalyst timelines accelerating and some extended." The firm argued it has the structural duration of capital to hold investments until catalysts play out, and said it intends to build in more diversification.
Despite the drawdown, the firm has continued to raise capital. Arini took in $389 million over the past week as part of a $1.5 billion fundraising effort. Arini has already sold some positions in large speculative-grade companies, and dealers have been sounding out buyers on more, with interest from Pacific Investment Management Co. and Oaktree Capital Management. Sales so far have centered on the fund's more liquid and better-performing assets. A representative for the firm declined to comment.
The reversal is stark for a firm that ranked among Europe's fastest-growing hedge funds. Launched in 2022 with about $1 billion, Arini expanded into a $21.7 billion credit-trading platform before the current turmoil. The decision to cut leverage while still raising new money signals a bet that the volatility is temporary rather than a verdict on the underlying credits, and whether limited partners share that view will become clearer as the $1.5 billion raise proceeds and the fund works through remaining positions offered for sale.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.