Arini fund loss widens to 32% as manager cuts risk

Arini Capital Management’s flagship hedge fund has lost 32% this year after declining 19.7% in October, according to a recent investor letter. The London-based firm is led by Hamza Lemssouguer.

The fund’s concentrated exposure to CCC-rated debt has been its main source of pressure. Arini wrote that it had underestimated the scale of the disruption in the lower-rated credit market, which accounts for most of the fund’s exposure.

The firm has re-underwritten its five largest positions, which represent about two-thirds of the master fund’s net asset value. It has cut selected holdings and reduced gross leverage to its lowest level since early 2022. Arini also plans to increase portfolio diversification.

The manager retained its confidence in its core investments. “As for our core positions, let us be clear: Our conviction remains firm,” the letter stated. Arini added that the fund had enough time and capital to wait for expected catalysts.

The firm attributed much of the recent pressure to market conditions rather than weaker company fundamentals. It pointed to collateralised loan obligations nearing their limits for CCC-rated debt and targeted short selling at prices it described as uneconomic.

Arini has begun selling selected positions in large speculative-grade issuers, with further disposals under consideration. The assets sold so far have mainly been more liquid and better-performing holdings. Pacific Investment Management Company and Oaktree Capital Management are among the potential buyers.

The fund reported $389 million of inflows over the past week as part of a broader $1.5 billion fundraising effort. Its latest review covered asset coverage, liquidity, recovery scenarios and investor protections for the five largest holdings. Arini wrote that some investment catalysts had accelerated while others had been delayed, while the underlying investment cases remained unchanged.

Arini launched in 2022 with about $1 billion in assets and later expanded into a $21.7 billion credit-trading platform. Its holdings have included debt issued by Altice International, Brightspeed and Aston Martin. Bonds from those companies have faced pressure from higher interest rates, increased energy costs and concerns about the effect of artificial intelligence on some industries.