Paul Goldschmid, a senior partner and longtime key player at King Street Capital Management, is set to depart from the $26bn hedge fund, where he has been instrumental in managing the firm's credit-focussed funds, to start his own venture, according to a report by Bloomberg.

The report cites unnamed sources familiar with the situation.

King Street, which has been in a revival phase after seeing a significant decline in hedge-fund assets and client withdrawals, confirmed the departure of Goldschmid, who joined the firm as a Partner in 2011, expressing appreciation for his contributions. "Paul has had an entrepreneurial interest for some time," a spokesperson for the firm noted in an email.

Goldschmid took on a prominent role within the firm following the 2019 departure of Co-Founder Fran Biondi, who originally launched King Street in 1995 alongside Brian Higgins with just $4m. Since then, the firm has been working to rebuild and expand its credit offerings. This includes securing new capital for drawdown funds focused on illiquid credit opportunities with longer lock-up periods. Currently, King Street manages about $15bn across both hedge fund and illiquid credit strategies.

While King Street’s hedge fund assets have yet to reach the heights of nearly $20bn achieved a decade ago, recent returns have shown improvement. The firm’s credit fund has seen an annualised return of 8.8% since July 2020, when Higgins took over as the sole managing partner. In that time, King Street has also maintained a zero-cash balance, a shift from prior years when the firm held as much as 40% in cash, frustrating some investors amid low returns in a rising credit market. Its latest drawdown fund, launched in May 2022, has delivered a net internal rate of return of 15.1%.

Goldschmid, who last year warned of an impending wave of corporate challenges due to excessive debt and constrained cash flows, sees opportunity for distressed-credit investors in this environment. "There’s a huge math problem in credit right now," he said at the time, hinting at the kind of market conditions his new venture may target.