Arini Capital Management’s flagship hedge fund has suffered a 32% loss year-to-date, following a 19.7% decline in October, as persistent weakness in high-yield credit markets weighs on its concentrated portfolio.
The London-based credit specialist, led by Hamza Lemssouguer, outlined the losses in a recent investor letter seen by Bloomberg, acknowledging that the fund had underestimated the extent of dislocation in CCC-rated debt, which accounts for the majority of its exposure.
In response, Arini has re-underwritten its five largest positions, representing approximately two-thirds of the master fund’s net asset value, while trimming selected holdings and reducing gross leverage to its lowest level since early 2022.
The firm also plans to introduce greater portfolio diversification following a period in which its concentrated exposure to lower-rated credit left it vulnerable to mounting market volatility.
Despite the deterioration in performance, Arini said its conviction in its core investments remained intact.
“As for our core positions, let us be clear: Our conviction remains firm,” the investor letter stated, adding that the fund had the structural duration of capital to see its investments through to their anticipated catalysts.
Arini attributed the recent market pressure largely to technical factors rather than a deterioration in underlying fundamentals. These included collateralised loan obligations (CLOs) approaching limits on their exposure to CCC-rated debt, alongside what the firm described as targeted short-selling at uneconomic levels.
The latest losses mark a significant reversal for Arini, which emerged as one of Europe's fastest-growing hedge fund managers following its 2022 launch with approximately $1bn in assets. The firm subsequently expanded into a $21.7bn credit-trading platform.
Its portfolio has included debt issued by financially challenged companies such as Altice International, Brightspeed and Aston Martin, whose bonds have come under pressure amid higher interest rates, elevated energy costs and growing concerns around the potential impact of artificial intelligence on certain industries.
Arini has already begun selling selected positions in large speculative-grade issuers, with further disposals under consideration. Previous reports indicated that the assets sold have primarily comprised more liquid and better-performing holdings, with Pacific Investment Management Company (Pimco) and Oaktree Capital Management among prospective buyers.
The fund also reported $389m in inflows over the past week, forming part of a broader $1.5bn fundraising effort.
In its latest investor update, Arini said it had reassessed asset coverage, liquidity, recovery scenarios and investor protections across its five largest holdings.
While some investment catalysts have accelerated, others have been pushed further out, the firm noted, maintaining that its underlying investment theses remain unchanged.
