Arini’s master fund losses deepen to 32% as manager trims positions

Arini Capital Management's flagship hedge fund has experienced a 32% loss year-to-date, with the decline intensifying in October. The London-based firm, managed by Hamza Lemssouguer, disclosed the losses in an investor letter, admitting that it had underestimated the extent of dislocation in CCC-rated debt, which constitutes the majority of its exposure.

In response, Arini has re-underwritten its top five positions, accounting for roughly two-thirds of the master fund's net asset value, while simultaneously trimming selected holdings and reducing gross leverage to its lowest since early 2022. The firm also intends to introduce greater portfolio diversification following a period of concentrated exposure to lower-rated credit that left it vulnerable to market volatility.

Despite the performance deterioration, Arini maintains confidence in its core investments, stating "Our conviction remains firm." The recent market pressure is attributed to technical factors, such as collateralized loan obligations (CLOs) nearing limits on their exposure to CCC-rated debt and targeted short-selling at ineconomic levels.

Arini, which grew rapidly in Europe following its 2022 launch with about $1 billion in assets, has transformed into a $21.7 billion credit-trading platform. The fund's portfolio includes debt from financially troubled companies like Altice International, Brightspeed, and Aston Martin, which have faced pressure due to higher interest rates, elevated energy costs, and concerns over AI's impact on specific industries.

Arini has already initiated sales of selected large speculative-grade issuances, with more disposals potentially on the horizon. The fund reported $389 million in inflows over the past week, contributing to a $1.5 billion fundraising effort. In its latest update, Arini reassessed asset coverage, liquidity, recovery scenarios, and investor protections across its top five holdings.

Though some investment catalysts have accelerated, others have been postponed, but the firm maintains that its underlying investment theses remain unchanged.