Davidson Kempner is set to close its $2bn (£1.53bn) distressed opportunities fund due to disappointing returns.

According to reporting by Reuters, the hedge fund manager sent a letter to investors last week stating that the fund would be shuttered due to the tough investing landscape.

The Davidson Kempner Distressed Opportunities Fund was up by five per cent in the year to date, but the letter said that these returns were not high enough. The fund manager added that no current investor has lost money in the fund to date.

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The fund has been active for more than 12 years, and Davidson Kempner noted that in the beginning the fund was active, with plenty of liquidity and opportunities to restructure.

However, the firm has decided that there are now more opportunities in the credit market, for example in corporate bonds or structured deals.

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“A prolonged period of interest rates near zero and the weakening of covenants and lender protections following the global financial crisis contributed to a significant decline in corporate default rates, bankruptcies and restructurings; this led to a declining opportunity set in liquid public market restructurings,” said the letter.

Davidson Kempner added that it will still invest in distressed assets but believes they would be better suited in the hedge fund’s closed-end fund and as part of its multi-strategy funds, rather than its distressed opportunities fund.

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