(Bloomberg) — Redwood Capital Management posted a 14% net return in its $4.2 billion flagship hedge fund last year, according to people with knowledge of the matter.
The New York-based credit and special situations investor benefited from wagers on troubled shopping malls and lenders mired in regulatory issues, while holdings in embattled Chinese developers hurt its performance, said the people, who asked not to be identified because the results are private.
A representative for Redwood declined to comment.
Amid exuberant markets and easy monetary policy, last year was hardly a welcoming environment for distressed investing. Still, Redwood profited from bets in companies including British subprime lender Provident Financial, which is winding down its long-struggling consumer credit unit following a regulatory probe, and distressed debt of telecommunications company Frontier Communications, which handed ownership to creditors when it exited bankruptcy last year, the people said.
Redwood’s biggest gain came from the equity of EPR Properties, a real estate investment trust that counts AMC Entertainment as its largest tenant, the people said. EPR shares rallied early last year as pandemic restrictions loosened and AMC rode the “memestock” frenzy, they added.
Meanwhile, Redwood’s position in China Evergrande Group bonds cost it 2.1% last year, the people said. The hedge fund didn’t anticipate the swift unraveling of Hengda Real Estate Group — Evergrande’s residential subsidiary and main onshore unit– and assumed the developer’s other businesses would hold most of their value, the people said.
One of Evergrande’s most actively traded bonds now changes hands for roughly 13.5 cents on the dollar, down from the 20 to 30 cent range late last year when distressed debt heavyweights such as Redwood, Saba Capital Management and Marathon Asset Management built up holdings.
Redwood’s $1.5 billion Opportunity Fund, which invests in high-yield debt and secured corporate obligations, gained a net 11.6% in 2021, the people said. Its second drawdown fund, a private equity-like vehicle, rose roughly 35% last year and is returning capital to investors, they added.
The firm raised $1.8 billion for its third drawdown fund, which began investments last July, the people said.
Redwood was founded in 2000 and is run by Ruben Kliksberg and Sean Sauler.
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