(Bloomberg) -- Hamza Lemssouguer, a former top debt trader at Credit Suisse Group AG, is raising hundreds of millions of dollars from Squarepoint Capital LLP as he starts his own hedge fund.
Lemssouguer, 31, known for amassing large, risky bets on corporations, will manage the money as part of a venture with London-based Squarepoint, according to people familiar with the matter. The Moroccan-born trader, who hopes to attract other investors, plans to start the nine-person fund in the first quarter of 2022 with about $1 billion under management, the people said, and eventually spin it out into an independent firm.
The fund, named Arini for the parrots that Lemssouguer breeds in his spare time, is the latest move by one of Europe’s most-watched traders. His returns at Credit Suisse were such that the lender offered him the chance to set up his own fund -- with as much as $500 million under management -- to stop him from leaving for a role at Citadel last year. That arrangement fell apart in June as the Swiss bank reeled from a series of crises and began taking fewer risks.
Lemssouguer will enter a credit market starting to show signs of stress after rallying almost non-stop since March last year as central banks keep interest rates close to zero and investors wager that corporations can weather the pandemic. London-based Arini will target companies to bet on and against, according to a fund document obtained by Bloomberg.
“We believe stressed opportunities are amplified and untapped in European credit markets,” the document said. “Their opportunity set is volatile as stressed companies do not stay stressed forever.”
The Arini fund will receive “operational support” and working capital from Squarepoint, Lemssouguer said in a statement. “This was the ideal partnership for us because it allows Arini to begin managing capital and investing while still laying a foundation for independence and standalone success over the long-term.”
Squarepoint Capital
Squarepoint Capital traces its roots to a unit within Lehman Brothers Holdings Inc. called nQuant. Barclays Plc inherited the business when it bought part of the collapsed investment bank’s operations and it was then spun off in 2014. The fund has about $8.5 billion under management, a person familiar said.
“Arini will initially be able to leverage Squarepoint’s global infrastructure, operations and technology resources and will be on a path to operational independence in the next three years,” Squarepoint Chief Executive Officer Pierre-Adrien Nicolas said.
Hedge funds that focus on corporate debt have struggled to outperform since governments and central banks began rolling out their responses to the pandemic and buoying up markets. They have also found it difficult to raise money for much of 2021: relative- and directional credit funds generated combined net inflows of just $160 million for the year through August out of $38 billion for the industry overall, according to data compiled by eVestment.
Hedge funds raising ten figures or more have been scarce this year as investors have preferred well-established money managers. Former Citadel money managers Niall O’Keeffe and Tio Charbaghi raised about $1.3 billion in Europe’s biggest launch this year. Christophe Aurand, the former co-chief investment officer of York Capital Management, is planning to raise a new $1 billion hedge fund.
During his time at Credit Suisse, Lemssouguer became one of the bank’s most vaunted traders. The Casablanca native generated a gross annualized return of 38% -- including 81% in 2019 and 44% in 2020 -- through bets on high-risk, high-yield bonds and credit-default swaps, according to the Arini fund document. Sofia Rehman, a spokeswoman for the Zurich-based lender, declined to comment.
Credit Suisse executives enabled their trading prodigy to take on large amounts of risk. At times, he controlled as much as 90% of the flows on deeply distressed company debt and was allowed to buy blocks of bonds worth up to $100 million, Bloomberg reported in June. At rival banks, transactions less than one-third of that amount need to be cleared by a committee of credit executives.
Lemssouguer’s strategy effectively enabled him to corner the opaque market for illiquid securities and often spurred losses for rivals who took the other side of the trade. Some in the market raised concerns about elements of the strategy to the U.K. Financial Conduct Authority and Credit Suisse, Bloomberg reported in June. At the time, the bank said it hadn’t received any formal complaints and denied any wrongdoing.
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