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Alternative Market Briefing

Alternative credit hedge funds with larger exposures to stressed and distressed corporate credit generate highest returns in Q2

Monday, July 12, 2021

B. G., Opalesque Geneva:

Credit hedge funds, as measured by Gapstow's composite index, gained 3.2% in Q2-2021, bringing year-to-date performance to 8.7%.

While all credit peer groups generated positive returns for the quarter, those with larger exposures to stressed and distressed corporate credit generated the highest returns. This result reflects the broader credit markets in which lower-quality credit outperformed (again).

- In Corporate Credit, the Distressed peer group generated the highest Q2 return at +5.9%. While this may seem low relative to the distressed index (+10.5%), the index is skewed toward the widest spread of stressed and distressed credits, particularly in the energy sector, which rallied the most in Q2, but are not as widely held in by managers in the peer group. (The managers in the peer group focus more on middle-market credits, which are a smaller portion of the index.)

- Within funds in Corporate Credit, the Long-Biased peer group (+4.3%) tend to have significant exposure to both stressed performing and distressed credit.

Credit interval funds, on average, gained 2.9% for the quarter, bringing year-to-date performance to 6.7%. Those funds continued their strong pace of growth, with net capital flows estimated to be 12% for Q2 alone. There are now five credit interval funds at or above $1 billion in AUM, with Cliffwater's Corporate Lending Fund now being the largest.

Credit market review

The US economic ......................

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