Morning Coffee: Hedge funds' high yield bloodbath - "Everyone is scared." Jeopardy of the sudden meeting in your diary

As we reported nearly two weeks ago, hedge funds with high yield investments have been having a hard time. The extent of this is now becoming clear.

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The Financial Times has been talking to some high yield investors who have declared that things are not going so well. “It’s a complete bloodbath,” says one portfolio manager at a large US hedge fund. “Everyone is scared of being in the next blow-up.” Pods at multistrategy hedge funds that are invested in high yield assets are being forced to close, says the FT. "Being flat is the new up." 

The bloodbath in high yield follows the bloodbath in macro. There is potential too for a bloodbath in equities as the FT says the large positions that hedge funds built in the Magnificent 7 tech stocks are being 'violently unwound.' Charlie McElligott, Nomura's big-bearded cross-asset strategist, observes that this is all helpfully happening just as 2026 hedge fund bonuses are under consideration. 

It's a bad time, then, not least because when we were last speaking to a veteran of high yield credit investing, he suggested that the entire asset class in Europe had become uninvestable. This is the result of "drop down strategies" facilitated by an eruption of weak covenants allowing companies to move assets into new subsidiaries, leaving bonds secured against far less collateral. 

The founder of one fund confirmed to the FT that drop down strategies are causing big problems. " We are now seeing a new reality — where [private equity owners] are deeply out of the money on their original investment and documentation is loose [leaving lenders exposed to assets being shifted], opening up a wider range of outcomes for creditors,” he explained. 

As investors rush to escape their high yield investments, the FT notes that yields on the lowest rated CCC bonds are climbing rapidly. Investors holding large quantities of these bonds have been unable to sell out of their positions. Now they have large losses. 

"It's a broken market," the veteran credit PM told us a few weeks ago. "Assets are being destabilized and you see the covenants that have been applied to everything are worthless. I wouldn't go back to a fund now."  

Separately, beware the meeting unexpectedly inserted in your diary by HR. 

Bloomberg reports that a meeting was inserted for staff at Weil Gotshal Manages. They received a sudden Zoom meeting announcement on 3.30pm on Wednesday and were told that the management of the law firm was recommending it be wound down. Juniors are getting 90 days pay; many only joined the week before, back when Weil Gotshal was still boasting about being a great place to work. 

Meanwhile...

Credit hedge fund Hamza Lemssouguer's Arini Capital Management has been looking to sell some of its most liquid and performing assets as a way to manage its portfolio and raise cash. Pacific Investment Management Co. and Oaktree Capital Management might be interested in buying the debt of Sabre Corp, for example. (Bloomberg)  

Proceeds from some of the trades went to meet margin requirements tied to investment in credit default swap indexes and other trades, people familiar with the matter said. (WSJ) 

“The major tech names are entering a no man’s land where they become uninvestable. When heavyweights like SoftBank halve in value over a few months, it is neither a buy nor a sell. Investors will want to simply keep out of the way.” (FT) 

Intel shares are still nearly double where they were a year ago. (Polemic Paine) 

The billion-dollar question is can Millennium deploy another $22 billion without structurally eroding their returns. (Rupak Ghose) 

Weil Gotshal Manges was known by employees as “We’re Gonna Match” when lawyers fielded competing offers. It was among the most profitable law firms with profits per equity partner over $5m. (Bloomberg) 

Partners from a generation ago have a Weil pension that is fully funded. Weil lawyers hired in recent years do not have a defined retirement benefit plan. (FT) 

Eddie Manheimer from Morgan Stanley is joining Bank of America as head of global power and utilities investment banking. (Bloomberg) 

The Italian government has got a draft budget proposing that wealthy residents who leave the country from 2027 will have to pay a 26% tax on unrealised gains on assets worth over €800k. (IMI)  

Greece is offering a €100,000 annual flat tax on foreign-sourced income and 50 per cent exemption on Greek-source employment or business income. It's also cut the tax rate on carried interest to 5%. Conditions apply. (FT)

Lloyds has got a round of voluntary redundancies. (The Times) 

Chloe Moffat, 26, was told in May 2025 by managers at the Treasury that they had received allegations she had shared sensitive confidential information. She denied this and the next day she took her own life. A coroner found that holding “informal fact-finding” meetings with employees accused of misconduct posed a risk of future deaths. (The Times) 

HSBC has already got an AI institute in Singapore. Now it will have one in Hong Kong too. (Reuters) 

No one wants to hire non-Mandarin speaking Europeans in Hong Kong now. One European expatriate sent out over 200 job applications and has coffee meetings with contacts, hiring managers and companies every day; he still doesn't have a job. (Bloomberg) 

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