Arini’s Hedge Fund Losses Grow to 32% as It Sells Some Positions

Arini Capital Management's main hedge fund saw its year-to-date losses deepen to 32% after a 19.7% slide in October alone, according to an investor letter seen by Bloomberg and reported by multiple outlets. The drawdown accelerated after October 23, when losses stood near 26%. The London-based credit specialist, founded by former Credit Suisse star trader Hamza Lemssouguer, stated in the letter that it "underestimated" the dislocation in CCC rated debt. This category makes up more than half of the fund's exposure, creating a highly correlated portfolio where assets moved in lockstep and magnified mark-to-market moves.

Management attributed the severe hit to market mechanics and technical factors rather than company fundamentals. The letter cited collateralized loan obligations bumping up against their purchase limits for CCC rated debt and "targeted shorting at uneconomic levels." The losses stem partly from wagers on weak corporate borrowers that faced pressure from higher global interest rates, elevated energy costs, and risks tied to artificial intelligence. Specific credits in the portfolio experiencing financial strain and falling bond prices include Altice International, Brightspeed, and Aston Martin.

In response to the turbulence, Arini conducted fresh due diligence and re-underwrote each of its five biggest positions, which together account for roughly two-thirds of net asset value. The firm examined collateral protection, balance sheet liquidity needs, downside recoveries, and investor protections. "As for our core positions, let us be clear: Our conviction remains firm," the letter said, adding that "Mark-to-market volatility of this kind is inherent in a concentrated, contrarian mandate" and that "The fund has the structural duration of capital to see these investments through to their catalysts." Furthermore, the firm noted that "The core theses remain unchanged, with some catalyst timelines accelerating and some extended."

To manage the risk, Arini trimmed some holdings, cut its gross leverage to the lowest level since early 2022, and announced plans to build more diversification into the portfolio. The firm has already sold some positions in larger speculative-grade companies, focusing sales so far on the most liquid and better-performing assets. Dealers have also been negotiating with prospective purchasers for additional sales, with interest coming from Pacific Investment Management Co. and Oaktree Capital Management. Despite the steep losses at a firm that expanded into a $21.7 billion credit-trading platform after launching with $1 billion in 2022, Arini's capital-raising efforts continued as it received $389 million in new investor capital over the past week as part of a $1.5 billion fundraising campaign. A representative for the firm declined to comment.