They swooped in to buy the debt of pandemic-battered airlines and cruise companies. Some got in on the lucrative role of funding Hertz Global Holdings Inc.’s bankruptcy reorganization, while others made wagers against commercial real estate. Now, some of the most seasoned distressed-debt traders are totaling up big gains.

Funds run by firms from Knighthead Capital Management to Diameter Capital Partners and Apollo Global Management notched returns that in some cases are approaching 50% after capitalizing on last year’s pandemic-induced market turmoil. While not necessarily the financial world’s biggest winners in a wildly volatile year that produced a more than 16% gain in the S&P 500 Index, they outmatched peers and the 5.5% average return recorded by Hedge Fund Research’s index of distressed-debt funds.

Though not all of the industry has finalized their numbers for 2020, Bloomberg News rounded up results for several of market’s most well-known distressed-debt and credit trading shops, along with the trades that helped generate those gains. The information compiled is based on people who’ve been briefed on the results but weren’t authorized to speak publicly. Representatives for each of the firms declined to comment.

Apollo Global
Apollo’s flagship credit hedge fund posted gains even in early 2020 when most of its rivals were nursing losses. Through December, the $3.4 billion Apollo Credit Strategies Fund was up about 26% before fees.

The fund is run by John Zito, senior partner, deputy chief investment officer and co-head of global corporate credit.

Apollo began amassing beaten-down investment-grade debt in March, and saw the holdings rally after the Federal Reserve started buying up those notes. The firm’s credit fund had a net-short portfolio but shifted to a net long approach after the market plunge in March.

The fund also made a profit on Hertz, first taking a short bet on the rental company before buying up first-lien debt and other financings. The vehicle also profited from wagers against energy and CMBX 6, a commercial mortgage-backed securities derivatives index with high exposure to shopping malls.

Apollo also benefitted from bullish credit bets on Frontier Communications Corp. and Advantage Sales & Marketing Inc.

Bardin Hill
Bardin Hill Investment Partners, which manages nearly $9 billion in assets, started a credit fund in April to target debt pummeled by the market’s dive. The Bardin Hill Opportunistic Credit Fund, now with roughly $400 million of assets, posted an annualized gain of 31%.

New York-based Bardin Hill specializes in targets with $500 million of debt or less. Jason Dillow, chief executive officer and chief investment officer, said in a December interview that his firm is looking to lend to certain sectors like fitness and wellness that can snap back in a post-pandemic world.

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