London Hedge Fund Gains 70% from Betting on Credit Blowout

(Bloomberg) -- Chenavari Investment Managers has racked up a 70% return this year after the hedge fund’s long-standing bet on credit-market turmoil paid off amid the coronavirus panic.

The firm’s $400 million Dynamic Credit Cycle Fund made the gains through March 12, according to people familiar with the matter, who asked not to be identified because the details are private. The fund uses derivatives such as credit default swaps to bet on companies’ ability to repay their debts.

A spokesperson for London-based Chenavari declined to comment on the performance.

Credit markets are reeling from the impact of the virus, with the worst-hit sectors including airlines, travel firms and retailers. Euro high-grade credit spreads, or the premium demanded by investors to hold company bonds instead of government debt, surged to the widest since 2012 on Thursday. They’ve almost doubled in the past three weeks amid the global outbreak.

We “have been expecting some significant credit spread widening for some time,” Loic Fery, founder and chief executive officer of Chenavari, said by email. The virus “will undoubtedly trigger an event-driven recession, which then is likely to be followed by a cyclical recession.”

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

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.

To contact the reporters on this story: Viren Vaghela in London at vvaghela1@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editor responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net

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