June 22, 2024

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London Hedge Fund Gains 94% as Pandemic Batters Credit Markets

(Bloomberg) —

Hedge fund Chenavari Investment Managers has extended its gains this year to as much as 94% thanks to bets on credit-market volatility during the coronavirus pandemic.

The firm’s $400 million Dynamic Credit Cycle Fund achieved the gains through March 16 after having already made 70% by March 12, according to a note sent to investors and seen by Bloomberg. Its strategy for the past two years has been to seek to benefit from a possible widening of spreads, the note said. It uses derivatives such as credit-default swaps to bet on companies’ financial health.

A spokesperson for London-based Chenavari didn’t immediately respond to a request for comment.

Credit markets have been shaken by the virus and the measures taken to control its spread with a gauge of European high-yield credit risk rising to the highest since 2012. The European Central Bank managed to calm the markets Thursday by launching a 750 billion euro ($820 billion) debt-buying program to keep borrowing costs in check.

“As a firm, we have been expecting credit spreads to widen for some time now due to both fundamental parameters including increased leverage in the corporate sector in particular, and worrying ‘technicals’ (thin liquidity, growing asset-liability mismatches) that could lead to major dislocations, especially in the credit markets,” Loic Fery, founder and chief executive officer of Chenavari, wrote in the note.

The firm, which manages $5.5 billion, was founded in the depths of the 2008 financial crisis by Fery, a former global head of credit markets at Credit Agricole SA’s Calyon unit. Frenchman Fery, a soccer fan, is also president of Brittany-based team FC Lorient.

The Dynamic Credit Cycle Fund is managed by Chenavari’s Co-Chief investment officer Frederic Couderc.

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