By Nell Mackenzie

LONDON (Reuters) - Credit manager Sona Asset Management returned 18.76% in its Credit Master Fund in 2024, benefiting from a surge in European companies needing to refinance their debt, an investor letter seen by Reuters on Wednesday showed.

This is the $10.1 billion manager's fifth year of double digit returns in its key fund. In 2024, its capital solutions strategy posted returns in different funds of between 15.6% and 19.7%.

The firm's collateralized loan obligations (CLOs) platform continued to perform in the top quartile of CLOs ranked by Deutsche Bank. These did not have specific annual percentage returns mentioned in the letter.

Investment firms that provide financing to companies in exchange for interest payments saw loan issuance nearly three times 2023 levels, while companies seeking to offer junk bonds increased by 100%, the letter said, citing research from Barclays.

This influx in volume and increased bank competition led to some deals being mispriced and needing 'strategic support,' said the letter.

Sona, which takes both long and short positions, said this contributed to the hedge fund's success.

The fund also took advantage of private credit deals - particularly companies that were given money in 2022 and 2023, re-classed as riskier and refinance in public markets rather than return to private investors, the letter said.

Sona did not name any specific deals.

Europe's historical under-spend on defence might benefit some companies in 2025, the letter said, without naming which companies it was interested in.

Other sectors of interest this year include auto suppliers, real estate companies which will need to borrow at higher rates, debt collectors, UK water companies, energy, satellite companies and finance.

They are still optimistic about Europe, however.

"There is a path away from this morass. The prospect for peace has grown and the potential for policy to improve and alter course is there," it said, referring to the potential for an end to the war in Ukraine.

(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Christina Fincher)