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Cheyne Credit Fund Lost 25% in March on Bets Hit by Coronavirus

Cheyne Credit Fund Lost 25% in March on Bets Hit by Coronavirus

(Bloomberg) -- London-based hedge fund Cheyne Capital’s total return credit fund lost almost a quarter of its value last month as debt markets convulsed over the impact of the deadly coronavirus pandemic.

The fund referred to as TRCF December 2024 lost 24.7% on top of a 5.3% decline in February, according to an investor letter seen by Bloomberg News. It mainly focuses on investment-grade companies which are less likely to default on their debts and includes bets using credit derivatives.

Lockdowns imposed by governments to stall the spread of the coronavirus have triggered a sharp sell-off in credit markets as investors weigh the economic impact of such measures. Even investment-grade borrowers are feeling the heat with the average cost of credit insurance on companies in the region rising to the highest since 2012.

Cheyne Credit Fund Lost 25% in March on Bets Hit by Coronavirus

“The firm remains confident in the underlying strength of investment grade credit and that, with its lack of exposure to the most at-risk sectors, the fund continues to be well-positioned to avoid defaults and generate target returns,” a spokeswoman for Cheyne said in an e-mailed statement. She declined to comment on the specific contents of the letter.

Risk of defaults in investment-grade debt is “materially mitigated” by the access companies have to conventional liquidity and stimulus programs from central banks and governments, the spokeswoman said. Cheyne manages about $7 billion in assets.

Investment-grade bonds are faring better than lower-rated credit as the Federal Reserve, European Central Bank and Bank of England buy up high-grade debt as part of efforts to boost markets.

Less than 10% of the Cheyne fund’s portfolio is exposed to high-yield borrowers and it’s highly diversified with approximately 150 names, according to the document sent to investors, which didn’t give details of the fund’s size.

©2020 Bloomberg L.P.