In a traditional high-yield bond fund, the yield-to-maturity often serves as a rough indicator of expected returns. Ridge Capital, however, operates with a more flexible mandate, allowing for opportunistic trades and the selective use of leverage to capture inefficiencies that are beyond the reach of conventional strategies. As its Northern Yield nears its three-year milestone, a key threshold for many institutional investors, the window to invest is narrowing.

Navigating Distinct Market Years

Each year since the launch of Ridge Capital Northern Yield at the start of 2023 has brought a distinctly different market environment and story. “Since we started, the market has changed completely from one year to the next. Just look at 2023, 2024, and 2025, three quite separate markets,” says Christoffer Malmström, co-founder and Chief Portfolio Manager at Ridge Capital. Northern Yield was launched into an environment full of opportunities after interest rates had risen sharply in 2022. “The market was already somewhat beaten down, which, in hindsight, was good timing for us,” he adds.

“Since we started, the market has changed completely from one year to the next. Just look at 2023, 2024, and 2025, three quite separate markets.”

Christoffer Malmström, co-founder and Chief Portfolio Manager at Ridge Capital.

Launching a fund in a challenging market environment is rarely straightforward. “2023 was tough because we didn’t know whether default risk would rise in an environment of higher rates,” recalls Malmström. “There were a lot of question marks around where we were in the cycle.” Ridge Capital Northern Yield ended 2023 with a return of 12.8 percent in Swedish kronor (SEK), supported by a strong finish.

2024, by contrast, marked a year of recovery for the Nordic high-yield market, driven by a compression of spreads. Even in an environment that lifted most managers, Ridge Capital Northern Yield managed to stand out, delivering a full-year return of 25 percent in SEK. “We benefited from the spread compression, but took advantage in ways others didn’t,” says Malmström. “That was really the year that set us apart and put us on the map.”

2025, however, has been an entirely different story. “Coming from 2024, when everything was recovering, we’ve now entered a market that has become much tighter,” notes Malmström. Spreads in European high-yield hover around 250 basis points, while Nordic high-yield is in the high 400s, near 500. “It’s a different environment, you need to dig deeper and stay open-minded to find the yields we’re looking for, without going too far out on the risk scale,” he adds.

Managing Risk in Volatile Markets

Malmström and his team were transparent with investors. “We told them that 25 percent in 2024 was great, but unlikely to repeat this year, unless a major market dislocation created new opportunities,” says Malmström. That scenario almost materialized when the “Liberation Day” tariffs in early April stirred volatility. Ridge Capital’s systematic hedging approach helped cushion the impact. “We had bought out-of-the-money puts on the iTraxx, which moved deep into the money already in March. Then, as the turmoil continued into early April, we kept holding those positions,” recalls Malmström.

“…25 percent in 2024 was great, but unlikely to repeat this year, unless a major market dislocation created new opportunities.”

Christoffer Malmström, co-founder and Chief Portfolio Manager at Ridge Capital.

The iTraxx widened from 270 to 430 basis points, reflecting a sharp increase in the cost of insuring against defaults. Credit spreads rose as the market perceived higher risk, though they could easily have reached 700, as during the Covid period. “At that point, my focus wasn’t on catching a falling knife,” says Malmström. “We held the positions, and then, once the tariffs were paused for 90 days, spreads fell back very quickly, and we didn’t realize the gains,” he adds. The positive impact in March was roughly half a percentage point, which was largely reversed by the end of April. “Net-net, the effect over two months was basically zero,” says Malmström.

Although the hedges didn’t add profits, they highlight the advantages of Ridge Capital’s alternative fund structure. Northern Yield can use leverage to boost returns, stay fully invested, and move opportunistically when attractive opportunities arise. The structure also protects investors from forced sales in less liquid markets due to monthly redemption terms.

Flexibility, Leverage, and the Edge Over Peers

Northern Yield offers monthly liquidity, but investors must give at least one and a half months’ notice, up to two and a half months. “That structure better matches the liquidity of the underlying portfolio,” notes Malmström. “We opted for the best way to never have to be a forced seller like most Nordic high-yield funds ended up in March 2020. This approach provides a structural advantage.”

Unlike traditional plain-vanilla funds, which are primarily designed to grow assets under management, Ridge Capital prioritizes delivering the best possible returns. While scale is important for maintaining a sustainable business, Northern Yield’s flexible mandate allows the team to focus on performance rather than simply chasing growth.

“We always have dry powder ready to invest, without needing to hold cash or cash equivalents that earn nothing.”

Christoffer Malmström, co-founder and Chief Portfolio Manager at Ridge Capital.

Northern Yield’s flexibility and ability to employ leverage further set it apart from UCITS-structured peers. “We always have dry powder ready to invest, without needing to hold cash or cash equivalents that earn nothing,” explains Malmström. Capital can be deployed efficiently, meaning 100 invested effectively becomes 150 of exposure. By contrast, in a plain-vanilla fund, 100 typically translates to only 80 deployed. “That’s one reason why they can’t deliver the type of returns we do.”

Opportunistic Strategy and Closing Timeline

Looking at the current environment, spreads may seem tight at first glance, but they are still within historical ranges. “It’s not extremely tight, but it’s fairly tight,” says Malmström. However, that doesn’t fully capture the opportunities available to Ridge Capital. Financing a typical double-B or single-B rated company in Europe, for example, usually attracts great investor interest, with high demand for those bonds and less attractive spreads. But the team focuses on less conventional opportunities, areas that many investors may not have the time or resources to analyze. “That’s where you can really get well paid.”

While Northern Yield’s portfolio currently shows a 14 percent yield-to-maturity, its split into two distinct components tells a more nuanced story beyond this headline figure. The first pocket currently accounting for 80 percent of the portfolio, is the performing basket, consisting of bonds purchased around par, where returns largely reflect the cash yield. “The other part, accounting for 20 percent at the moment is the opportunistic basket,” Malmström continues. “We buy bonds at a discount – 70 or 80 cents on the dollar – focusing on catalysts that could push prices up. If the catalyst happens, that becomes an exit event.” This allows the team to realize an IRR “much higher than the yield to maturity.”

“Performance always comes first. That’s really top of mind at all times, before any fundraising or growing the assets under management.”

Christoffer Malmström, co-founder and Chief Portfolio Manager at Ridge Capital.

The team at Ridge Capital has set a goal to close Northern Yield to new investments once it reaches €300 million, or €450 million on a leveraged basis, and they are now over halfway. The strategy is also approaching its three-year anniversary at the turn of 2026, a milestone usually watched closely by institutional investors. Therefore, with its significant pipeline of leads pending from investors across Europe and Nordics, capacity is expected to fill around the summer of 2026. “Performance always comes first,” concludes Malmström. “That’s really top of mind at all times, before any fundraising or growing the assets under management.”