Distressed debt managers are racking up the best performance in the ever-growing pack of fixed-income hedge funds, while more conservative arbitrage funds are posting more modest returns and some are even in the red.
Highland Capital Management and Schultze Partners are some of the top performers, while Spyglass Capital and Xenon Partners are among those posting negative returns.
Distressed hedge funds are up 9.8% through September, according to an index produced by Van Hedge Fund Advisors International, an advisory firm in Nashville, Tenn. Meanwhile, the firm's fixed-income arb index has only outperformed the Lehman Brothers Aggregate Bond Index by 4.4% so far this year, compared to annual outperformance of more than 9% each year since 2000. Van characterizes arbitrage funds as those taking positions in assets including mortgage-backed securities and their derivatives to exploit interest-rate related opportunities.
Highland's Crusader Fund is up 27% year to date. Jack Yang, partner in New York, attributed the $500 million distressed fund's performance to its focus on "control-oriented situations, middle market companies in combination with proprietary sourcing capabilities and senior secured loans." Schultze, a Purchase, N.Y.-based distressed fund has a 35% return year-to-date, said George Schultze, founder and portfolio manager. The fund has $120 million under management and an additional $45 million in commitments. Schultze's strategies include going long bonds and bank debt and shorting equities.
At the other end of the spectrum, Spyglass, a Naples, Fla.-based MBS trader, was down 14% through August. "Our investor base and returns have stabilized and we are excited to ply our trade as we've always done," said Paul Brodsky, managing partner. He declined to reveal the assets under management.
Meanwhile, Chicago-based Xenon's arbitrage fund was down about 16% this year through August. Jay Feuerstein, president, did not respond to messages and Steve Schnur, cio, declined comment.
