In an industry where scale often dominates, London-based Chepstow Lane Capital has taken a different approach. The European credit fund, which posted a 13.24% return last year, against the hedge fund average of 10.7% (according to Pivotal Path), has built its strategy around an often overlooked reality: Europe is not a monolith.
Founded in 2022 by Agata Dornan, a former Soros Fund Management Portfolio Manager, Chepstow deliberately maintains a limited size. The fund has capped capacity at $1.5bn – a decision its team believes provides competitive advantage.
“The biggest inefficiency we see is investors basically approaching Europe as one big thing which it isn’t,” Dornan explains. “There’s 27 countries in the EU, plus the UK and Switzerland. Many countries are exhibiting different growth trajectories, taking different policy paths with different election cycles, against a backdrop of different fiscal positions. Understanding the nuances across European countries is important and tradeable, especially given how many names fall through the cracks.”
This fragmentation creates opportunities for funds willing to look where others don’t. Chepstow invests across European corporates, banks, and sovereigns – from investment grade to distressed – shifting allocations as market conditions change.
Dornan describes the approach as methodical: the team “maps out” the market, using a macro lens to develop investment themes, then targets areas with limited sell-side coverage. This strategy means spending “about a third to half our time on less covered situations,” according to Dornan.
The approach was tested during 2023’s banking crisis. When Credit Suisse collapsed, triggering sector-wide panic, Chepstow made a counterintuitive move: building positions in Greek banks.
“We used that dislocation as an opportunity,” Dornan says. “We correctly identified that time as a compelling dislocation opportunity in banks. We liked what we saw with respect to Greece’s macro position, the Greek banks’ capital positions, and we also saw that there was a catalyst for this to trade up – if we were right about the sovereign upgrade it would draw in a whole new investor base that had previously not been paying attention because of ratings, which are backward looking.”
The team’s analysis showed Greece exhibiting “above average EU growth and below average EU inflation” – a fundamental picture at odds with market perception. Six months later, when the rating agencies upgraded Greece to investment grade, those positions delivered what Dornan describes as “very good risk-adjusted returns.”
The approach was also tested during this year’s tariff turmoil. “Europe has acted as a safe harbour since the start of the year and throughout the April volatility. Many have been rethinking their European underweights, especially in light of the German fiscal stimulus and policy uncertainty in the US and US dollar volatility. We were able to add to tariff-immune risk at attractive levels during April,” said Dornan.
Such targeted bets require agility. Chepstow maintains a flat organisational structure with a four-person research team, based in London. “I don’t believe in a lot of layers and bureaucracy, I believe in agility,” Dornan notes. The fund plans to soft close “well in advance” of reaching its capacity ceiling to maintain this nimbleness.
Looking ahead, Dornan sees Germany’s recent €1tn spending announcement as potentially transformative for European markets. “Germany hasn’t grown in two years. [This] will have a massive impact on their growth trajectory.”
After a decade of being told Europe is “uninvestable” due to lack of growth, Dornan believes perceptions may finally be shifting. “For allocators who have been under-invested in Europe, the case for being under-allocated looks very, very different than it did before.”
For a fund that profits from volatility and market dispersion, such changing sentiment creates what Dornan calls a “target-rich” environment – suggesting that staying small might continue to yield big results.
While mega-funds continue to dominate hedge fund flows and startup numbers decline, a quiet revolution is taking place in the industry’s margins. Investors are increasingly hunting specialised managers who can fill precise portfolio gaps – from employee wellness to sustainable living.
These emerging niche strategies aren’t just surviving in the shadow of multi-strategy giants; they’re thriving by targeting unexploited market inefficiencies and emerging secular trends. The series would explore how these specialised funds are carving out their space in an industry typically associated with scale, examining their unique value propositions, challenges and the investors backing their vision.
