(Bloomberg) — Paul Goldschmid, one of the longest-tenured partners at King Street Capital Management, is leaving the $26 billion hedge fund firm.
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Goldschmid helped run King Street’s hedge fund and drawdown vehicles, which focus on credit, and plans to start his own firm, according to people with knowledge of the matter. He had been a partner at King Street since 2011 and was also a member of its management committee.
King Street had been charting a revival path for its key credit businesses after a period in which its hedge-fund assets fell by half and clients bolted. Since then, it has been expanding its offerings, including attracting fresh capital for its drawdown funds that focused on illiquid credit and longer lockups. The money across its hedge funds and illiquid strategies makes up about $15 billion of its total assets under management.
The firm confirmed that Goldschmid will leave at year-end and said it was grateful for his contributions.
“Paul expressed interest for some time in doing something entrepreneurial,” a firm spokesperson said in an email.
Goldschmid was named co-portfolio manager of the hedge-fund assets after the departure of one of its founders, Fran Biondi, was announced in 2019. Biondi and Brian Higgins founded King Street in 1995 with $4 million after they worked together for almost a decade at First Boston.
The firm’s hedge fund assets still amount to less than what it had amassed almost a decade ago, when they totaled $20 billion. The firm then went through a period of poor returns, especially as credit markets climbed, while it averaged cash holdings of about 40% — frustrating investors who were unhappy with the low-single-digit returns.
Since July 2020, when Higgins took over as sole managing partner, the hedge fund has returned an annualized 8.8%, according to a person familiar with the firm’s performance. Its cash balance, on average, has been zero. Its newest drawdown fund, which started in May 2022, has a net internal rate of return of 15.1%.
Last year, Goldschmid had warned that companies were about to get hit by a dangerous combination of too much debt and too little cash flow, a scenario that could present new opportunities for distressed-credit investors.
“There’s a huge math problem in credit right now,” Goldschmid said at the time.