A $13bn credit manager’s European analyst can look at three or four situations. Everything else fails his liquidity screen before the credit work starts. Frits Lieuw-Kie-Song runs a few hundred million at Ironshield Capital and can look at hundreds of them.
This episode is a full walk-through of how a long/short credit book is actually run: which credits are eligible in the first place, how positions get sized from the downside before conviction enters, when a short is worth the borrow and the carry, and where the tail hedge sits.
How a Long/Short Credit Hedge Fund Decides What to Own
A US credit fund running $13bn has one analyst covering Europe. He can work on three or four situations. Everything else fails on liquidity before the credit work starts: a 5% position in a EUR 400m issue is EUR 20m, which is 0.15% of the fund. Even a double from there adds 15bp. No outcome on a position that size pays for the research effort.
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📊 KEY INSIGHTS FOR CREDIT INVESTORS
Median return to an LME is now one year: Co-op exercises rewrite the documents and leave the operating problem intact, so the issuer is back at the table fast.
A co-op seat is not a steerco seat: Without the committee you cannot see who holds senior, who holds junior, or who is running CDS alongside a cash position.
Size decides eligibility before credit quality does: A 5% holding in a 22bn structure is 1.1bn of bonds, so a few-hundred-million fund is never on the steerco.
Orphan bonds are where the edge survives: A 400m single-bond structure is too small to matter for a $13bn manager, and sell-side coverage has thinned over the last decade.
Position size comes from the downside: 30 to 40 points of loss against a 50bp per-position budget caps the trade at roughly 1.4% of the fund.
A short needs a catalyst, not a disappointment: Earnings 5 to 10% below expectations does not pay for the borrow and the carry.
Bid-offer widens as the bond falls: At 30 cents, three or four points of spread is more than 10% of the price of the bond.
Equity index put spreads hedge the credit tail: Hedging high yield with high yield removes the exposure he is paid to hold.
⏱️ TIMESTAMPS
00:00 Long/Short Credit and the Wine Analogy 00:37 Frits Lieuw-Kie-Song and Ironshield Capital 04:29 Orphan Bonds: Why Large Managers Skip 400 Million Issues 06:53 Defining Value in Credit: The Sail-Around-the-World Test 08:56 Credit Research Process: Website Red Flags Before the Model 12:13 Scenario Modelling and Probability-Adjusted Returns 15:09 Virgin Media Case Study: Two Products, Four Competitors 18:26 Liberty’s Four-to-Five Turn Leverage Playbook 21:50 Fibre Migration, Altnet Consolidation and BT Pricing Risk 24:43 LMEs vs Pre-COVID Restructuring: A Plaster on the Wound 26:28 One-Year Median Return to LME 28:53 Position Sizing From the Downside 31:06 The 50 Basis Point Loss Budget and the Risk Committee 34:55 WorldCom: Margins Too Good to Be True 37:37 Shorting Credit Without a Catalyst 41:22 Global High Yield Since 1989 and the Equity Put Tail Hedge 45:18 Market Neutral Mandate: 6% Net, Flat in a 10% Equity Drawdown 46:54 Bank QIS Tail Overlays and Structuring Fees 48:43 Evoke Trade: UK Gaming Tax, 70 LTV and a Takeover Catalyst 53:31 Volta Grid Trade: Factory-Built Generators and Delay Risk 56:21 CoreWeave Issuance and the AI Credit Technical 57:56 Tech Winner-Take-All: The Intel Lesson From 2000 1:01:45 2008 Counterparty Risk and the Morgan Stanley Trade 1:05:54 TARP, the Fed and the Price-Insensitive Buyer 1:08:45 Packaging Credits: Pass-Through Pricing and Excess Capacity
🎙️ ABOUT THE GUEST
Frits Lieuw-Kie-Song, Portfolio Manager, Ironshield Capital, London. 25+ years in global high yield, event-driven and distressed credit, including eleven years at Allianz Global Investors. Joined Ironshield in 2025 to run the HY Alpha / Market-Neutral (UCITS) strategy. Ironshield is a European leveraged finance boutique founded by David Nazar with restructuring experience across European jurisdictions, and publishes long-form research on software credit and private credit marks.
Ironshield Capital: [INSERT IRONSHIELD URL] · LinkedIn: [INSERT FRITS LINKEDIN URL]
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