Losses at Arini Capital Management's flagship hedge fund deepened in the final days of October, leaving the fund down 32 percent for the year, according to a letter to investors seen by Bloomberg. The October decline of 19.7 percent was the worst monthly drop in the fund's short history and reflected persistent weakness across credit markets.
The fund, run by founder Hamza Lemssouguer, is a high-yield debt specialist that has grown rapidly since launching in 2022. It swelled from roughly $1 billion to about $21.7 billion in assets under management, posting strong returns from distressed and relatively illiquid corporate debt. This year marks a sharp reversal. The 32 percent decline is on course to be the strategy's first annual loss.
CCC bonds and correlated losses
In the letter, the fund said it had underestimated the dislocation in the CCC-rated bond market. Those bonds make up the bulk of the portfolio's exposure, and because the positions were highly correlated, they moved in the same direction when selling pressure intensified.
Against that backdrop, Lemssouguer re-underwrote each of the fund's five largest positions, which together represent about two-thirds of net asset value. The fund also cut some holdings and reduced total leverage to its lowest level since early 2022. It plans to increase diversification to avoid a repeat of the concentrated drawdown.
Selling positions to raise cash
Arini has been looking for buyers for some of its high-yield debt holdings as it seeks liquidity. Major asset managers including Pimco and Oaktree have submitted bids, according to a separate Bloomberg report. The sales have focused on more liquid and better-performing positions, including debt issued by travel technology company Sabre, though talks remain preliminary.
Dealers are also holding discussions with prospective buyers over further disposals. The sales highlight how distressed credit hedge funds are being forced to unload securities at the same time that larger, well-capitalized credit buyers are looking to pick up high-yield bonds at discounted prices.
Market pressure builds
The losses have come amid a broader selloff in lower-rated corporate debt. Rising global interest rates, higher energy prices, and concerns about disruption from artificial intelligence have hit speculative-grade borrowers particularly hard. The fund's flagship strategy managed $7.5 billion at the end of July, and the October drawdown suggests assets have fallen sharply since then.
Despite the losses, Arini has continued to attract investor capital. The firm raised $1.5 billion earlier in October, with more than $400 million already allocated. It also received $389 million of inflows over the past week and has reopened the flagship strategy to additional commitments from existing investors.
What the fund is telling investors
The investor letter portrayed the losses as a positioning problem rather than a fundamental breakdown in the firm's credit analysis. By reducing leverage, trimming concentrated positions, and adding diversification, Arini hopes to stabilize the portfolio while keeping enough exposure to benefit when credit markets recover.
Still, the speed of the decline is notable. A 32 percent drop in ten months is severe for a credit hedge fund, and the concentration in CCC-rated debt means the strategy remains vulnerable to further spread widening. The coming months will test whether Lemssouguer can adjust the portfolio quickly enough to avoid deeper losses.
A reversal for a former star
Lemssouguer, a former star trader at Credit Suisse, built Arini on the belief that credit markets contain inefficiencies that can be exploited through concentrated, fundamental positions. The approach produced strong returns in the fund's early years and helped it attract billions in institutional capital.
This year's losses show the downside of that same concentration. When the thesis turned, the fund had too much exposure to the weakest part of the credit market and too little offset elsewhere. For Arini's investors, the question now is whether the fund can shrink, diversify, and wait out the storm, or whether more forced selling lies ahead.
