Anchorage Capital Group decreased its exposure to distressed and restructured investments in the first half of the year, warning that investors weren’t getting paid enough to take risks, according to an investor letter obtained by Bloomberg. 

The fund lost 1.48 percent in the January-to-June period, posting losses for each of the first six months except for April, and well as in nine of the 12 past months through June, according to historical net performance data in the letter. The firm’s trailing 12-month return is minus 3.71 percent. All the returns are exclusive of fees.

Credit hedge funds have struggled to keep pace with a market rally this year, with a gauge of the funds only up 3.75 percent for the year through July 31, and distressed-focused funds up 6.2 percent. That compares with gains of more than 12 percent in high-yield corporate bonds and eye-popping returns of more than 30 percent in the distressed corner of the market, fueled by central-bank stimulus around the world.

Amid the enduring credit rally, Anchorage resisted investments that aren’t paying excess returns relative to risk, according to the letter. “This has meant limiting our long exposure where we believe that risks are not being adequately compensated -- including in lower quality high-yield, commodities-sensitive businesses and recent-vintage distressed.”

Noting that low and negative interest rates and cheap financing have protracted the credit cycle and allowed systemic leverage to continue to building, Anchorage urged investors to start preparing for “the inevitable reversal of these trends.”

A spokesman for Anchorage declined to comment.

Anchorage, founded in 2003, focuses on credit, special situations and illiquid investment strategies, according to its website. The fund manages $15.6 billion.

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