London credit investor Arini hit by Europe’s thorniest credit trades
Exposure to Aston Martin and Altice International has weighed on fund run by 35-year-old Hamza Lemssouguer
London-based credit investor Arini Capital Management has found itself on the wrong side of a number of Europe’s thorniest distressed debt trades, pushing its flagship strategy to a loss during a year when two of its top traders have left.
Arini, which manages $22bn, has been one of Europe’s fastest-growing hedge funds and quickly developed a reputation for using leverage to take big concentrated bets on the debt of struggling corporates.
Founded in 2021 by former Credit Suisse high-yield trader Hamza Lemssouguer, the contrarian approach has earned its master fund big profits, gaining 27 per cent in 2023, 21 per cent in 2024 and 10 per cent last year.
But a series of soured bets has driven the 35-year-old Moroccan’s flagship fund to a loss of more than 8 per cent since the start of the year, according to people familiar with the matter.
The master fund — Arini’s largest — lost almost 8 per cent in July and close to 1 per cent in August, as positions in the debt of companies including Aston Martin and Altice International have deteriorated.
The fund’s largest single-name loss in July came from a bet on the debt of Altice International, part of Franco-Israeli billionaire Patrick Drahi’s telecoms empire.
Altice International’s bonds plummeted at the end of last year, when Drahi shifted the group’s most valuable assets out of the pool of collateral pledged to creditors. Arini was among the group of senior bondholders that banded together in negotiations with the company and accused it of triggering a default.
But in July, a subset of the senior creditor group — including Arini and Silver Point Capital — began pushing for a deal that would give them a preferential payout compared with their peers in any restructuring, as a reward for being willing to litigate against Altice. News of the deal caused Altice’s bonds to fall further, forcing Arini to mark a loss for the month.
Arini was hit by another asset shift in July, when heavily indebted carmaker Aston Martin stripped its most valuable naming and branding rights from the reach of creditors owed more than £1.3bn, causing its bonds to plummet.
Arini is one of the company’s largest bondholders, owning hundreds of millions of pounds’ worth of Aston Martin’s debt. The assets were pledged to private credit firm HPS, as part of a contentious £550mn new financing deal that cut out existing creditors.
During a difficult year for the fund, a number of senior traders including US chief executive Gavin Yates and Ben Elliott, another member of the investment team, have departed. Yates is set to join Citadel.
The fund sought to reassure investors in a letter about the July performance, telling them that its expectations about worst-case scenarios and timelines for its positions to come good were unchanged, and that it had doubled down on its highest-conviction trades.
It has bounced back from similar mark-to-market losses before.
Arini reminded investors that it shed 8 per cent over two months in early 2024, then gained about 29 per cent over the following 12 months. The fund also lost 15 per cent over a few months shortly after its launch in 2022, but over its first four years, Arini earned a return of 73 per cent.
Alongside its flagship fund, Arini also runs other smaller strategies where performance this year has been better. Its credit opportunities fund is up 12 per cent year to date and a direct lending strategy has returned 7 per cent so far this year, according to people familiar with the matter. Arini also has an asset-backed finance strategy.
Arini’s volatility stems from large bets on some of the most perilous situations in credit, often becoming the largest bondholder of a distressed company, holding such a large size that its position is harder to sell out of. When these bonds fall sharply in price, Arini risks taking large losses.
As well as owning large chunks of debt, the hedge fund has also garnered a reputation for trading in the opaque market of credit default swaps (CDS), buying and selling protection against defaults by heavily indebted companies.
Arini was one of the largest holders of bonds issued by glass and packaging conglomerate Ardagh before taking ownership of the group in a restructuring last year. It had also sold large amounts of Ardagh CDS to investors seeking protection against a default in a trade gone wrong, however, resulting in it having to pay out large sums to investors who bought the contracts.
It also took losses in July from two telecoms positions, according to people familiar with the matter: an equity stake in US group EchoStar and a large position in the bonds of Apollo-backed Brightspeed, which has since warned of its ability to continue as a going concern.
Bloomberg first reported Arini’s July losses.
Arini also holds a small position in Pfleiderer, a struggling wood panelling company backed by Strategic Value Partners. The price of its bonds fell to 17 cents on the euro this month from about 46 cents at the end of August.
Bondholders including Arini are set to take over Pfleiderer as part of a restructuring, making it the latest heavily indebted company the credit fund will have taken control of since last year, along with Ardagh and debt collector Lowell. Italian packaging group Reno de Medici is also set to join that list.
On top of the CDS sales on specific companies, Arini is known for selling large slices of derivative indices that protect against losses at a broad range of riskier companies.
These “equity” tranches mean that Arini in effect provides insurance against the riskiest portion of the European junk debt market, betting defaults will be lower than the market expects.