For as long as Hamza Lemssouguer has traded high-yield debt, he’s been on the offensive, placing bets at a scale few in the cutthroat market dare to match.

By Giulia Morpurgo, Nishant Kumar, Reshmi Basu and Irene García Pérez These days, though, the 36-year-old founder of Arini Capital Management is in the uncomfortable — and unprecedented — position of licking his wounds as the riskiest corner of the European junk-debt market that he’s dominated for years is slumping around him.

Arini’s flagship fund, which had $7.5 billion in assets under management at the end of July, was down 12% for the month through Oct. 23 and around 26% so far this year, according to a person familiar with the matter, on track for the first annual loss since Lemssouguer started trading for his fund in 2022.

Lemssouguer, formerly a star money manager at Credit Suisse, has shifted to a more defensive stance. He is busy managing his existing positions while bidding less actively to add to Arini’s holdings, according to people with knowledge of the matter, who asked not to be identified because the information is private.

The withdrawal of buying power from Arini — one of Europe’s fastest-growing hedge funds — has intensified investor fears about a junk-debt market that was already facing an array of challenges.

And as his bets sour, competitors that would typically act as counterweights are becoming more cautious about stepping in with their own buy orders, given concerns about the health of the credit market and its weakest borrowers, the people said.

Rising global interest rates, higher energy prices, concerns about France’s fiscal health and threats from artificial intelligence have hammered a Bloomberg index of triple-C rated European corporate bonds — the lowest rung of junk debt — for four straight months through September. That is already the longest stretch of monthly losses since 2018.

October is poised to extend that losing streak, and is shaping up to be the most brutal one-month period in four years. Other credit-focused firms are also having lackluster months.

The main hedge fund of John Aylward’s Sona Asset Management, another large player in the market, is down 3.1% in the first half of October, on track for its worst month since its 2016 launch.

“With no obvious near-term circuit breakers, the situation could become systemic and create market-wide repricing and dislocations,” Stefan Tsonev, founder and chief investment officer at Sternlight Capital Partners, speaking generally about the high-yield market rather than any specific borrowers or investors.

Many smaller firms are now actively avoiding weaker credits in which Arini may have a large stake, worried they have further room to fall, some of the people with knowledge of the matter said. For instance, a $300 million bond due in 2028 from Ritz-Carlton Yacht Collection has tumbled to less than 75 cents on the dollar, from more than 92 cents at the end of September.

Investors have grown wary of the bond, given Arini is a sizeable active holder, some of the people said.

In the US, certain investors at one point were going a step further and actively seeking out short bets against securities, partially on the basis that Arini was a creditor, the people said. Even as some of his distressed-debt bets have floundered, Lemssouguer is bringing in money. Arini raised $1.5 billion in new cash for its credit strategy, a person familiar with the matter said earlier this month, and has now reopened the fund to raise cash from existing clients. More than $400 million of the new capital was allocated at the start of October, with the rest to be deployed through February.

Arini wasn’t available for comment. It’s a remarkable reversal for Lemssouguer, who raked in such grand profits at Credit Suisse that the bank had to fend off Citadel’s Pablo Salame to keep him. At Arini, his hot streak continued, following any losses with even bigger gains, often doubling down on positions to press his advantage.

Arini has grown into a $21.7 billion credit-trading giant after starting out at $1 billion in 2022.

Arini has until now reported stellar returns for investors by buying up the debt of large firms with lower credit ratings, many of which have undergone sweeping restructurings. Successful trades over the years have included bets on UK e-commerce site Very Group, Swedish debt collector Intrum AB and Altice France, a telecommunications company controlled by tycoon Patrick Drahi.

In recent months, some of Arini’s bets have fared less well, including its holdings of debt in luxury carmaker Aston Martin Lagonda Global Holdings Plc and Altice International, another Drahi-backed firm, whose bonds have plunged in recent months as debt maturities loom. Arini also owns a large stake in the debt of US building products maker Cornerstone Building Brands Inc.

Presently, Arini’s large position in Aston Martin’s debt has weighed on returns. Prices for the bonds have dropped from about 55 cents on the dollar at the beginning of the month to 47 cents on Wednesday, according to Bloomberg-compiled data.

Previous Setbacks This summer, when Arini’s fund was already underwater for the year, Lemssouguer compared the losses to his setbacks in the first half of 2024. Then, the fund lost about 8% in just two months, but used the volatility to add to positions and ended the year up 20.8%, according to an investor letter sent this August.

“It is the same playbook we are running today and mark-to-market volatility is embedded in how this strategy generates returns,” Lemssouguer wrote. The letter discussed the fund’s performance through July, when the fund was already down 7.7% for 2026.

The challenge for hedge funds broadly is proving that volatility ultimately produces returns — rather than just losses. Quantitative funds, which rely on algorithms to make investment decisions, and multistrategy vehicles fared best in September, a month marred by higher oil prices, central bank tightening and a bond-market rout.

Lemssouguer’s track record will be put to the test. His early days at Credit Suisse came during a period when the Swiss bank was retreating from risk, only for him to end up with a a gross annualized return of 38%, including 81% in 2019 and 44% in 2020.

At Arini, named after the parrots Lemssouguer breeds, he gained 4% in 2022, a year marked by sharp interest-rate increases that broadly hammered developed-market equities and bonds. Returns in the flagship hedge fund spiked to 25.8% and 20.8% in 2023 and 2024, respectively. Last year it was up 8.6%.

Some say the broad selloff makes this a promising time to place new bets on high-yield credit. “This is the most exciting opportunity set for discerning credit investors in recent history,” Sternlight’s Tsonev said.