Trading, turnover and carry
Holding periods vary in response to opportunities. “Holding periods average 6 months but may only be a few days for event driven trades. They might stretch to two years, but the investment thesis would need to be regularly underwritten again to justify continuing investment. Turnover of names is much lower as we often revisit the same groups of credits in different parts of the capital structure,” explains Chhabra.
Coupon income can be quite important for about half of the book, where there may not be many or any events. This provides a bulwark of returns. “The balance between carry and event driven or special situations does vary. Post-Covid we found more event opportunities,” recalls Chhabra.
European credit in early 2026
Ironshield view selected European spreads as fairly valued relative to their history, while US and emerging markets corporate spreads are historically tight. “European credits often compensate investors more for perceived risks: lower growth, political risks in countries such as France, the Russia/Ukraine war, the energy crisis, and the lack of AI-driven growth,” says Sawhney.
Nazar points out that, “Investors should focus on spreads rather than headline yields, which are lower due to the 2% difference in risk free rates between the US and Europe in October 2025. Investors in our USD share classes get an extra 2% from the currency hedge swap”. For instance, in October 2025, a yield to worst around 5% is 7% in USD, but some credits pay much more. Nonetheless, buying and holding names indiscriminately now offers unattractive risk reward since many years of income from a single digit risk premium can be wiped out by double digit price declines when mishaps occur.
Dispersion and disruption
Dispersion is coming from energy transition, shifting consumer preferences, regulation, politics and geopolitics, and widened in 2025. “This is an all-weather, through-the-cycle strategy, because we always find value and mispricing somewhere for longs or shorts,” says Sawhney.
Despite headline average European credit spreads near all-time lows, the market became very bifurcated as BBB and BB paper has tightened to the slimmest risk premiums since the 1990s, while CCCs have been Cinderellas moving in the opposite direction. “The CCC segment in Europe is worth over USD 200 billion and they are paying spreads over 600. These names are liquid enough for the UCITS,” says Sawhney.
European credit has not participated in the nearly “everything” rally that saw all-time highs in US, European and Japanese equities, gold, silver, copper, bitcoin, ethereum and more, but European high yield still meets Ironshield’s return target. “We are confident that our double digit return target is realistic but are not sure if gold can repeat the best performance since 1979, or if US tech stocks now valued at the 99th percentile will have a fourth year up 25%. We play tech in different ways: a USD 400 million bond trading at a 40% loan to value ratio represents 60 different software businesses,” says Sawhney.
Creditor-on-creditor violence
One reason for dispersion is creditor-on-creditor (CoC) violence, which can result in different outcomes for pari passu creditors. “Changes in EU law also adopted by the UK mean that majority approval is no longer required for all classes of creditors. A single class of creditors voting against a proposal can still be crammed down,” cautions Nazar.
Gauging CoC risks requires multi-layered analysis. “Are creditor groups well organised and do they have a history of these sorts of manoeuvres? Can they coerce other creditors? Can they snatch assets away from collateral pools? Can large creditors subordinate junior creditors through up-tiering, dropdowns or changing credit agreements,” says Sawhney, who recommends Ironshield’s white paper on the topic.
CoC violence can provide strong short opportunities: “These included vending machine operator Selecta. Recently a creditor group caused a 15-point drop in senior paper of UK carpets group Victoria,” says Nazar.
Sometimes Ironshield sits on the sidelines because CoC can be akin to internecine warfare. “In some situations, everyone has lost out from CoC violence. It can be better to wait for the outcome of a restructuring process and buy the newly created super senior paper,” Nazar reveals. Ironshield strategies can also end up owning post-bankruptcy equity through debt for equity swaps or buy it without prior debt ownership. Nazar has also witnessed “sponsor-on-creditor” violence involving private equity sponsors.
Short alpha
CoC, or fears of it, have contributed to sharp movements in certain credits. In October 2025, shorts, including a flooring company, an amusements park company and a chemicals company swiftly dropped by 15 points. “This was partly due to asymmetric risks of creditor-on-creditor violence,” says Nazar. Other names swooned 15-40 points in days, partly in response to the failure of car parts maker First Brands. Short opportunities can also arise from fraud risk, harking back to the 2002 credit bear market. Legal cases allege that sub-prime auto lender Tricolor was a fraud. “They took advantage of US Covid PPP loans and created a pool of loans applied to different ABS tranches,” says Sawhney.
Shorts can also include structurally declining industries and companies. “Single name shorts need to be carefully chosen, and need a catalyst, because they are expensive to carry with annualised costs of 10%. We do also explore baskets of shorts that are less catalyst focused and more thematic,” says Chhabra. AI exuberance has now percolated from equity markets into credit markets as certain tech firms have become substantial issuers.
Private debt
Ironshield finds stale pricing and opacity in private credit can provide extended windows of opportunity for shorts. “Cases like First Brands and its vendor financing exposures remind us there are very large vulnerabilities in private debt, which has grown enormously. Trillions have been lent in that market, and 25% is payment-in-kind (PIK). Off balance sheet factoring also means that real leverage can be multiples of reported headline corporate leverage. Investors need a specialist manager to look closely at cash and working capital,” says Nazar. While Ironshield is not originating direct loans, the team continues to monitor emerging stress within that part of the market.
Transparency
There is longevity in the investor base, which includes banks, financial institutions, advisors, foundations, wealth managers, family offices and funds of funds. “Investors value the firm’s transparent reporting and communication, including in-person meetings, quarter-end write ups, white papers, webinars and breakfast briefings, which readers can explore,” says Mayne.
Nazar has remained committed throughout periods when both European credit and mid-sized hedge funds were less in favour. He has not just sought opportunistic returns, but rather enduring relevance in European credit. “Markets move in cycles, but discipline and integrity endure. Our job is to protect and compound capital through both,” sums up Nazar.
“The current market conditions of dispersion, mispricing, refinancing, restructuring and creditor on creditor violence have historically been highly opportune for idiosyncratic credit investors,” he concludes.
