Diameter closes its second dislocation fund

In a new test of its research-oriented ‘know-the-names’ philosophy, New York-based Diameter Capital Partners has closed Diameter Dislocation Fund II on its hard-cap of $2.2 billion. The firm would not provide the original target for the closed-end drawdown fund.

DDF II will invest globally and across sectors with a focus on what it described in a release as “dislocated performing credit, stressed and distressed investments”. The firm said it is agnostic as to whether that distress comes from broad macro challenges or more micro difficulties.

The firm highlighted that, although the fund received support from current Diameter clients, it has also expanded on that base. Approximately 50 percent of commitments come from first-time Diameter investors.

DCP is an alternative asset manager founded in 2017.  It launched the precursor to this fund, DDF I in April 2020 and closed that fund in April 2021 with $725 million in total commitments. DCP declined to comment on performance.

In a statement, Diameter said that it has an AUM of approximately $13 billion and invests across the full spectrum of corporate credit. It has under management a hedge fund, drawdown dislocation funds, collateralised loan obligations, collateralised debt obligations and a forthcoming private credit platform.

A year-and-a-half ago the co-founders of Diameter, Jonathan Lewinsohn and Scott Goodwin, told Bloomberg that the secret to the firm’s success was their principle of ‘know the names’. There are tens of thousands of securities (“names”) in the global bond and loan markets; knowing them all well enough to make informed decisions is the challenge, they said.

According to Lewinsohn’s LinkedIn page, before founding Diameter with Goodwin in 2017, he worked at Anchorage Capital Group as its head of research for 2007-13 and at Centerbridge Partners from 2013-17. During the same period, Goodwin was the head of high-yield bond and CDS trading and then portfolio manager and global head of trading at Anchorage Capital.

In an interview on Bloomberg TV, Goodwin spoke of the importance of their work together at Anchorage, which taught them that “his background in research and my background in trading worked well together”. That realisation led to the creation of Diameter and its ‘know-the-names’ approach.

In October 2022, as Diameter expanded both into Europe and into direct lending, Apollo Global Management acquired a 4.99 percent passive equity interest in the firm. Apollo’s co-president Jim Zelter said at the time that the fall of 2022 was a “great time to be getting into private credit”.