EM distressed-debt managers cap funds as inflows swell

Shiprock Capital Management, Broad Reach Investment Management and Sandglass Capital have limited new subscriptions to their flagship emerging-market distressed-debt funds after recent inflows made it harder to trade in small, illiquid markets. Shiprock paused new allocations when assets under management exceeded $1 billion. Broad Reach told investors it will close its flagship strategy to new subscriptions once it reaches a pre-set capacity target. Sandglass has tightened capacity controls following a sharp rise in assets over the past year.

Shiprock targets distressed sovereign and corporate debt in countries including Venezuela, Argentina and Ukraine. Broad Reach focuses on special situations and distressed credits across developing economies. Sandglass invests in niche emerging-market debt opportunities where trading volumes can be low.

Managers report that larger fund sizes reduce trading flexibility in frontier and smaller emerging markets. Building or exiting positions in these markets can move prices and widen spreads, which limits the amount of capital that can be deployed without affecting returns.

Industry data show strong recent flows to the asset class. Net inflows into emerging-market debt funds were at their strongest level in more than a decade in 2025, with momentum extending into 2026. Emerging-market-focused hedge funds have outperformed broader emerging-market bond benchmarks since a rally began in early 2024.

Several firms are steering fresh capital into vehicles that can absorb larger sums. Shiprock launched a special-situations strategy focused on the secondary loan market. Sandglass is raising a private credit vehicle aimed at emerging-market opportunities outside public bonds. Other managers are routing new allocations into private and alternative credit structures.

Managers expect ongoing credit restructurings and elevated risk premiums in some developing economies. They say maintaining the ability to enter and exit positions without moving markets will require active limits on fund size. For now, a number of specialist emerging-market distressed-debt funds are prioritizing capacity management over taking additional capital.