Sculptor trims risk, raises hedges after 7.9% YTD gain

Sculptor Capital Management reduced risk across most strategies and increased hedges after posting a 7.9% net return year‑to‑date. In an investor letter the firm reported it had taken profits and lowered leverage, net exposure and beta‑adjusted equity to their lowest levels in the past 12 months.

The portfolio committee cited several warning signs that prompted a more defensive stance. It pointed to signs of tightening in funding markets late in the second quarter, including reduced credit availability and wider financing spreads. The committee also noted elevated market volatility, persistent inflationary pressure and a heavy pipeline of equity, credit and convertible debt issuance that is raising capital demands while investor positioning appears stretched.

To limit downside, Sculptor reduced gross leverage and net exposure and increased hedges across strategies. The committee highlighted policy uncertainty as a factor, noting a more hawkish tone from Federal Reserve Chair Kevin Warsh on inflation and warning that renewed geopolitical tensions involving Iran could push price pressures higher and make additional rate increases more likely.

Despite the defensive posture, the letter said credit markets remained receptive to borrowers in 2026. Strong investor demand supported substantial debt issuance tied to artificial intelligence investment. Tight high‑yield spreads enabled lower‑rated companies to refinance on attractive terms, and banks brought a greater number of leveraged loan transactions to market as conditions eased for issuers.

Sculptor reported that its global credit and convertible arbitrage strategies benefited from AI‑linked investments, particularly infrastructure financing deals with contracted cash flows, rapid debt amortisation and parent company guarantees. The firm added that each of its investment strategies produced positive returns in the first half of 2026 while it moved to more cautious positioning for the second half.

The portfolio committee reiterated confidence in longer‑term structural themes such as artificial intelligence and real assets while prioritising capital preservation in light of current funding and macroeconomic signals.