Credit-focused hedge funds posted muted gains in the second quarter.
The Gapstow Alternative Credit Hedge Fund Composite Index rose just 1.6 percent for the period, boosting its gain for the year to 4.6 percent, according to Gapstow Capital Partners’ second-quarter report. That is on pace for about a 9 percent return for 2024.
Gapstow noted in its second-quarter report that the credit markets experienced some volatility over those three months, especially in April. Yet when the quarter ended, interest rates and credit were “roughly at the same levels at which they started.” Ten-year Treasury notes rose by just 15 basis points, and corporate high-yield and loan spreads “were similarly changed.” Therefore, carry, or yield, “drove much of the quarterly total return,” Gapstow said.
Structured credit funds performed the best, gaining 2.4 percent in the second quarter and 6.5 percent in the first half, according to Gapstow, driven mainly by collateralized loan obligations. Corporate convertible bond specialists were up 5 percent through June.
One of the best performers was the Magnetar Structured Credit Fund, up more than 22 percent in the first half of the year after gaining more than 6 percent in June, says someone familiar with the fund. Gains this year have been driven primarily by specialty finance investments as well as regulatory capital investments, CLOs, and other securitized products, the source adds. Altogether, Magnetar Capital manages more than $17 billion.
Other high-profile credit-focused hedge funds did not fare as well as Magnetar.
For example, the GoldenTree Master Fund climbed 1.84 percent in the second quarter and is now up 6.7 percent through mid-July, according to a person familiar with the fund.
The source says that all asset classes have contributed positively to returns this year. The fund’s leisure and health care investments have been top performers, including investments benefiting from restructuring milestones and solid operating results. Structured credit investments also drove performance, specifically credit risk-transfer solutions that create regulatory capital relief for banks and attractive risk-adjusted return profiles for the fund, the source adds.
Elsewhere, King Street Capital’s flagship fund was up 2.14 percent in the second quarter and 3.7 percent for the half, according to someone familiar with the fund. The Canyon Value Realization Fund was up about 5 percent in the first half of the year, says a person who has seen the results. The Mudrick Distressed Opportunity Fund, for its part, was down nearly 4 percent through May, per two hedge fund databases. The Hildene Opportunities Fund was up nearly 3 percent through May, according to a database.