Arini fund down 16% as troubled debt bets sour

London-based credit hedge fund Arini Capital Management has suffered a sharp reversal in performance, with its flagship strategy down almost 16% this year after a series of losses on debt linked to financially troubled companies, according to the Financial Times. The report, which cites unnamed people familiar with the returns, states that Arini's master fund fell an estimated 7.6% in September, bringing its year-to-date decline to 15.7%. The fund accounts for around $7.3bn of Arini's approximately $22bn in assets and has now recorded three consecutive monthly losses. The strategy fell by almost 8% in July and roughly 1% in August. Final September performance figures are expected to be determined later this month.

The losses have occurred even as Arini raised $1.5bn for the flagship fund in recent weeks, including $425m at the beginning of October. The remaining new capital is expected to be allocated by early 2027. Arini has built a reputation for concentrated investments in the debt of companies facing financial difficulties, often using leverage to amplify returns. The firm also trades credit-default swaps, which allow it to take positions on the likelihood of corporate defaults.

Several recent positions have come under significant pressure. Arini has substantial exposure to the debt of telecommunications companies Altice International and Brightspeed. Altice International's senior bonds are trading at less than half their face value as negotiations continue over a potential restructuring of the company's debt, and Arini is among a group of senior creditors seeking terms that would give them a preferential recovery relative to other lenders. Brightspeed, the Apollo-backed US broadband provider, has seen its bonds and loans fall sharply as it begins discussions with creditors over a debt burden of around $10bn. Arini's holdings of Aston Martin bonds have also been hit after the luxury-car manufacturer transferred some valuable assets beyond the direct reach of creditors.

The strategy's concentrated approach has produced substantial gains in the past. According to the report, investors earned a 73% return from Arini's main hedge fund during its first four years, although the strategy has also experienced significant drawdowns before recovering as concerns about individual borrowers eased. Arini reportedly declined to comment.