This manager's fund grew to $20 billion after turning down Citadel

In 2020, Hamza Lemssouguer turned down an offer to manage billions for Ken Griffin’s Citadel. Instead, he launched Arini Capital in 2022 with $1.3 billion, a move that has since seen his firm’s assets under management swell to $20 billion, making it the fastest-growing new hedge fund according to Hedge Fund Research data.

"He has a lot of haters," said Rupak Ghose, a finance-industry commentator and former investment banker who advised hedge funds. Critics argue Lemssouguer’s strategy, which focuses on shorting the debt of heavily indebted companies, relies excessively on leverage to amplify returns, a method prone to spectacular failure.

Arini’s performance figures tell a story of high volatility. The fund has delivered an average annual return of 15 percent, more than double the 7 percent average for credit hedge funds tracked by HFR. However, its main fund has also recorded losses as steep as 6 percent in a single month. The firm’s recent winning trades included prescient short bets against software companies like ZipRecruiter and Unisys, which paid off as fears of a "SaaSpocalypse" hit debt markets earlier this year.

The success of Arini's aggressive short-selling highlights a growing pressure point in credit markets, potentially increasing volatility for over-leveraged companies, particularly in the software sector. While the firm says it uses a complex hedging model to protect against major losses, the strategy has not yet been tested through a prolonged market downturn, leaving questions about its long-term stability.

A Contrarian's Playbook

Lemssouguer’s approach was forged during his time as a top bond trader at Credit Suisse. He gained notoriety in 2016 with a contrarian short bet against Jaguar Land Rover. After canvassing dealerships and finding growing inventory, he deduced that sales would slow, contrary to prevailing market sentiment. The trade, representing about 10 percent of his portfolio, returned about five times the bank's money when sales eventually dropped.

This pattern—deep analysis, strong conviction, and maximum leverage—has become his signature. During the early 2020 Covid-19 outbreak, he executed short bets worth approximately $1 billion against cash-strapped companies, netting a $220 million profit in the first quarter alone. Unlike the multi-manager "pod-shop" model used by firms like Citadel, Arini’s single team of 20 analysts collaborates on all fund views, a structure Lemssouguer believes allows for faster, more decisive action.

Risk, Reward, and Rapid Growth

Despite its strong average returns, Arini’s path has been choppy. The firm’s launch in early 2022 coincided with Russia's invasion of Ukraine and a jump in global interest rates, leading to a 15 percent loss between March and September of that year. In response, Lemssouguer recruited Deutsche Bank trader Ardacan Celebi to build a "risk-mitigation engine."

Celebi, another graduate of a French math school, designed a model using derivatives, bonds, and ETFs to hedge the portfolio and limit maximum potential losses, or "drawdowns." Lemssouguer claims this engine allows the firm to maintain its aggressive posture even in volatile markets. While the main hedge fund was closed to new investors after hitting $4 billion to protect performance, Arini continues to expand into lower-fee businesses like collateralized loan obligations and private credit, which now account for a significant portion of its $20 billion AUM.

This article is for informational purposes only and does not constitute investment advice.