Sandglass Capital / Sandglass Opportunity Fund: Hedge Fund Diligence (First Pass)

Prepared 2026-10-20 from the 225 PDFs in sources/. The newest evidence is the September 2026 deck, the 31 Aug 2026 fact sheet and the July 2026 PPM. The 2025 audits were signed on 24 Apr 2026. This is a first-pass note. It is not full investment diligence or ODD, and it is not a recommendation. No Coverage File exists for this fund. Nothing outside sources/ was used.

Source key: [Deck26] Fund presentation, Sep 2026 · [1P26] One-pager, Sep 2026 · [FS26] Class D fact sheet, 31 Aug 2026 · [Call26] Investor call deck, May 2026 · [DDQ26] DDQ, 30 Jun 2026 · [Org26] Org chart, Sep 2026 · [SP26] Service-provider list, Jan 2026 · [PPM26] PPM, Jul 2026 · [ADV26] Form ADV Part 2A, Mar 2026 · [AFS21–25] Audited financials for the master, Cayman feeder and US feeder, 2021–2025 · [PnL] P&L by strategy and asset class, Sep 2026 · [Hit] Hit rates, 31 Aug 2026 · [Conc] Investor concentration, 31 Aug 2026 · [Comp] Composite investor report, Aug 2026 · [IRR24] Internal risk report, 31 Dec 2024 · [GRA24] General Risk Advisors report, 16 Dec 2024 · [Ltr YYYY-MM] Monthly letters and fact sheets, Feb 2013–Jul 2026 · [CS] Case studies, 2024–2026

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1. First Impression

What it is. SGOF is an emerging-markets ex-China special-situations fund that is mostly credit. It buys distressed and stressed sovereign and corporate debt, adds event-driven equities and local-currency positions, and takes some single-name "alpha" shorts. The main return driver is sovereign restructurings: Ukraine, Argentina, Ecuador, Sri Lanka, Zambia, Lebanon and now Venezuela [Deck26 pp.2–3, 10; DDQ26 §11.3; Call26 p.6]. Genna Lozovsky is the sole PM. He owns 83.5% of the management company, and co-founder Michelle Kelner owns 16.5% [DDQ26 §1.6]. Strategy AUM was $827m and firm AUM $1,055m at 31 Aug 2026 [Deck26 p.5].

Why it's worth a meeting. The fund has a 13-year live history, and every year from Feb 2013 to Jul 2026 has a monthly letter in the folder. Since Jan 2018 the presented net return is 12.6% a year at about 12% volatility (my calculation from [FS26]). The 5-year R² against MSCI EM, EMBI and HFR Distressed is only 21–24% [Deck26 p.6]. The fund works on sovereign creditor committees, and its process is documented with scenario and probability case studies [CS; Call26 p.5]. Service providers are institutional: SS&C, KPMG, J.P. Morgan PB, Proskauer and Maples. KPMG's audit opinions for 2021–2025 contain no qualification language.

What is unclear, and the biggest gaps:

• The track record has been re-presented, and the audits do not fully support it (§4). In the December 2024 fact sheet the whole "Class D" history was restated upward, which moved cumulative 2013–2023 returns from +136.5% to +154.8%. The series is now described as an "actual investor" at 1.5%/15% from 2018 and as pro forma before 2018. The audits show that standard Class D terms were 1.75%/20% until 2025. Audited Class D returns for 2022–2024 are below the marketed figures.
• The fund runs close to net long. The fund markets 60–80% net exposure and calls itself "hedged". Net exposure was 82–99% at most quarter-ends from mid-2023 to mid-2026, and the hedge book lost money in every year from 2020 to 2026 YTD (§5–6).
• Concentration. Argentina and Ukraine produced about 73% of the +39.8% in 2024. The same two countries were 35% of NAV at the end of 2024 [PnL; IRR24].
• Key-person risk sits on one person, and governance is thin. One PM, who also holds risk responsibility. One key-person clause. The risk committee is made up of insiders. One of the two "independent" directors co-founded the Sputnik Funds, where Lozovsky was a principal (§2, §7).
• AUM is growing fast. Strategy AUM was $248m in Jan 2023 and $827m in Aug 2026, with about $200m of stated capacity left. Three of the five largest investors arrived in 2025–26 [Comp; Conc; 1P26].

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2. Team

Facts. The firm has 17 full-time staff, of whom 7 are investment professionals [DDQ26 §1.7]. It has offices in New York, London (an FCA-regulated sub-adviser) and Dubai (the Dubai branch of a Cyprus entity, used for research and operations) [DDQ26 §1.5; PPM26 pp.7–8]. Two departures are disclosed: the Head of Operations in Sep 2021 and an analyst in Dec 2022 [DDQ26 §1.7]. The PPM defines a Key Person Event only for Lozovsky [PPM26 p.3].

Claims vs. evidence. The deck claims "team consistency since inception" [Deck26 p.4]. The DDQ's own turnover disclosure contradicts this mildly. Several senior non-investment staff, including the CFO, GC, both MDs, the Senior Finance Officer and the Controller, have bios that describe their previous roles as "most recent", but no hire dates are given. Three senior staff (Kelner, Wenning and Wynne) all came from Prince Street Capital.

Read (interpretation). The edge looks tied to Lozovsky. He is the only PM, sets the position limits, holds risk responsibility, and the key-person clause names only him. The research bench is experienced, but no one besides the two founders holds equity. Whether the analysts could run the book without him is not covered in the sources.

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3. Terms, Liquidity and Alignment

Alignment, facts. Principals hold 5% of SGOF, about $27.0m of related-party LP capital at YE2025. They hold 0% of Petrus and the Credit SMA, and 18%, 7% and 6% of Select Funds I, II and III [DDQ26 §1.9; AFS25 master note]. The Select funds charge 18% carry [Deck26 p.5]. The PPM states that principals "may have significantly greater personal investments in certain other accounts", which creates an incentive to favour those accounts in allocation [PPM26 p.72]. SCML can waive or vary fees for any investor without notice. Side letters cover fee rebates, capacity and MFN rights [PPM26 pp.10, 40; AFS21–25]. Legal costs are amortized over 12 months, which the PPM says is "contrary to GAAP" [PPM26 p.9].

Read. Fees of 1.5%/15% are investor-friendly for this strategy, and 5% principal capital is meaningful. Three points still need to be addressed:

• The founders hold larger stakes in the drawdown funds, which pay more and invest in the same universe.
• Liquidity differs across investors. Closed Class A has monthly liquidity with no investor gate, while Class D redeems quarterly through a gate. Petrus and the SMA have undisclosed terms.
• Investors cannot exit around a key-person event, because redemptions are suspended for 90 days.

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4. Performance and Drawdowns

Presented record, Class D net, Feb 2013–Aug 2026 [Deck26 pp.6, 15; FS26]: +339% cumulative and 11.5% annualized since inception. Trailing returns are 17.4% (1-year), 22.0% (3-year) and 16.9% (5-year). 5-year volatility is 9.9%, Sharpe 1.32, Sortino 2.30. There have been 49 negative and 114 positive months. Calendar years: 2018 −5.2%, 2019 +9.4%, 2020 +9.5%, 2021 +16.3%, 2022 −2.2%, 2023 +26.0%, 2024 +39.8%, 2025 +12.2%, and 2026 YTD +9.9%. All of these are unaudited.

Drawdowns (my calculation from [FS26], matching the stated −19.98% maximum with a 7-month recovery):

Are drawdowns explainable? Mostly, yes. The letters explain them promptly and in plain terms. They separate temporary markdowns from permanent impairments, naming KCA Deutag and Premier Oil in Mar 2020 [Ltr 2020-03]. After drawdowns the fund tends to add risk: it grew Argentina and started Ecuador in Apr 2020, and added Kazakh banks in Sep 2022 [Ltr 2020-04, 2022-09]. Argentina recurs in losses (2018, 2019, 2020, 2022) and in gains (+17.4% in 2024). The DDQ's "targeted maximum portfolio drawdown of 10%" was exceeded twice [DDQ26 §1.10].

Restatements and conflicts across sources. These are the primary diligence gap.

1. The Dec 2024 restatement. The Dec 2023 fact sheet labelled its series "Class D net". It showed 2023 +24.35%, 2022 −2.45%, 2021 +15.03%, 2017 +12.16% and 2015 +14.39% [Ltr 2023-12]. From the Dec 2024 fact sheet onward, the same years read +25.98%, −2.20%, +16.25%, +13.16% and +15.53% [Ltr 2024-12]. Every year moved up. Cumulative 2013–2023 went from +136.5% to +154.8%, and the annualized return from 8.2% to 9.0% (my calculation). The new footnote calls the 2018+ data "representative of an actual investor in Class D" and the pre-2018 data pro forma, built from gross returns at 1.5%/15%, that "may be considered hypothetical".
2. The fees do not match the audits. The master fund audits for 2021–2024 state Class D fees as 1.75% management and 20% performance. They change to 1.5%/15% only in the 2025 audit [AFS21–25, fee notes]. A June 2022 letter footnote also gives 1.75%/20% for its headline return [Ltr 2022-06]. A 1.5%/15% "actual investor" before 2025 therefore appears to have had non-standard (side-letter) terms. This is an inference that needs confirming.
3. Audited class returns differ from the marketed series. Cayman-feeder Class D, calculated per share: 2022 −2.45%, 2023 +24.35%, 2024 +37.14%, 2025 +12.21%. US-feeder Class D: 2021 +17.22%, 2022 −2.20%, 2023 +25.90%, 2024 +39.86%, 2025 +9.92%. The marketed figures are 16.25%, −2.20%, 25.98%, 39.81% and 12.24% [AFS21–25 financial highlights]. The marketed series seems to track the US feeder in 2022–24 and the Cayman feeder in 2025.
4. The pre-2018 numbers were raised. Letters from 2013–2017 reported lower contemporaneous returns. For example, 2017 was reported as +11.93% against +13.16% now, and Apr 2015 as +6.2% against +6.65% now [Ltr 2017-12, 2015-04]. Letters from Dec 2023 through Nov 2024 quoted Class A (2%/20%) in their headline figures [Ltr 2023-12, 2024-06 footnotes].

The DDQ says no NAV has ever been restated [DDQ26 §4]. These are presentation changes, not NAV restatements. Still, the headline record shown today (11.5% ITD, the quartile ranking and the awards) is built on the most favourable series.

Hit rate [Hit]: 70% of strategies won since inception (57 won, 24 lost). The weakest years were 2014 (36%) and 2022 (47%). In 2024 the fund returned +39.8% with a 58% hit rate, so that year depended on a few large winners.

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5. Strategy and Edge

Claim. The manager argues that the EM credit universe (more than $4.4tn) is inefficient. It cites poor data and research coverage, the value of local knowledge, wide dispersion, and opportunities across the credit "life cycle" from default to market access. The fund aims to profit from 12-month catalysts through scenario-weighted analysis, engagement with issuers and policymakers, and committee work [Deck26 pp.2, 7, 10; DDQ26 §§2, 11.3–11.4].

Evidence.

• Returns come from where the fund says they do. Distressed credit produced +26.8% in 2024, +12.7% in 2023 and +5.7% in 2025. The main sources were the Argentine recovery, Ukraine, Sri Lanka, Ecuador and SSA sovereigns [PnL].
• The case studies are rigorous. Each lays out explicit recovery scenarios, haircuts and exit yields: Ukraine Feb 2024, Ecuador Sep 2024, Lebanon Dec 2024 and Oct 2025, and Venezuela 2026 [CS; Call26 pp.8–12].
• Correlation to broad indices is low: R² is 21–24% [Deck26 p.6].
• Some trades depend on legal outcomes. An example is the litigation over the Argentine EUR GDP warrants [Ltr 2026-07].

What contradicts or qualifies the claim.

• The edge is concentrated in a few large macro outcomes. In 2024, Argentina (+17.4%) and Ukraine (+11.8%) made up about 73% of the year's return. In 2023, Ukraine and the Greek recovery made up about 54% [PnL]. The 2023–24 results mainly reflect one EM-distressed recovery cycle.
• The hedging rarely paid off. The "Hedge EM" line lost money in every year: −2.37% in 2020, −0.71% in 2021, −1.47% in 2022, −0.94% in 2023, −0.50% in 2024, −0.94% in 2025 and −1.04% in 2026 YTD. That is about −8pp in total [PnL]. The letters do say hedges helped in some stress months (Mar 2020, Sep 2022, Mar 2025) [Ltr].
• Not every thesis worked. The Azul memo of May 2024 rested on the company avoiding an in-court restructuring [CS Azul]. Airlines and travel then became the largest detractor in 2025 (about −2.4%), and the position rolled into post-Chapter 11 equity [PnL; Call26 p.11].
• The mandate has drifted slightly. The DDQ describes 12–16 themes and 30–50 positions, while the 2026 fact sheet says 15–18 themes and 40–60 positions [DDQ26 §1.10; Ltr 2026-07]. The DDQ also lists "growth" equities as a theme [DDQ26 §11.3].

Where it should struggle (the manager's own words): systemic shocks, and "extended low risk premium" periods with little convexity available [Deck26 p.10].

Still to diligence. P&L attribution for 2013–2019 is missing; the [PnL] file is titled "2018–2026" but its pages start in 2020. The sources do not split returns between skill (entry level and structuring) and the market tailwind for EM-distressed recovery. The sources also do not show how decisions are actually split between the sponsor, the investment committee and the PM.

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6. Portfolio, Risk and Capacity

Stated framework [Deck26 pp.8–9; DDQ26 §§1.10, 11.5]: 60–80% net and 80–120% gross, with a 150% gross cap. Limits at cost are 20% per strategy or issuer, 25% net per country and 10% per single-name equity short. The fund aims to liquidate 90% of the book within 30 days. A daily internal risk report is supplemented by weekly third-party GRA reports and a monthly risk committee. The limits apply only at the time of investment. If a limit is breached passively, the manager has "no obligation to do so within any specific time period" [IRR24].

Actual exposures from quarter-end fact sheets:

Sources: [Ltr] fact sheets; [Ltr 2026-07]. Net exposure was above the stated 80% ceiling at most quarter-ends from mid-2023. Shorts were 0–7% of NAV.

Snapshot at 31 Dec 2024 [IRR24; GRA24]:

• NAV $377m, 49 positions, 78% of NAV in distressed longs.
• Country exposure: Ukraine 18% and Argentina 17% (sovereign 8% and provinces 8%).
• Largest positions: Buenos Aires 2037s 11% and Ukraine 2041s 11%.
• The only short was the EMB ETF at 5%.
• PB margin excess was $21m, or 5.6% of NAV.
• The GRA model's total VaR (95%) was 0.43%. That looks low next to realized volatility of about 10% a year; the methodology should be checked.

Liquidity and valuation. At Jul 2026, 88.6% of the book was liquid within 30 days. Level 1 was 18.7%, Level 2 81.6% and Level 3 0% [Ltr 2026-07]. Audited Level 3 assets fell from $13.1m in 2021 to zero in 2025. The 2025 balance sheet includes $75.8m of credit-linked notes, 15.6% of NAV and classed as Level 2, which brings issuer-bank counterparty risk [AFS21–25].

Capacity and flows.

• Strategy AUM: $248m (Jan 2023), $409m (Dec 2024), $563m (Dec 2025), $827m (Aug 2026) [Comp].
• From Jan to Apr 2026 the fund took in $66m plus £75m (the GBP Class G) [AFS25 sub. events].
• Remaining capacity is about $200m [1P26].
• The largest LP held 28% of SGOF at Jun 2026 and has been invested since 2017 [DDQ26 §1.9; Conc]. The top 5 hold 58.8% of the strategy, and three of them arrived in 2025–26 [Conc].
• Petrus and the Credit SMA each have one investor [DDQ26 §1.9].

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7. Key Counterparties and ODD Snapshot

Flags from documents (facts, not findings):

• Independence of the board. The deck calls two of the three directors independent [Deck26 p.13]. Bedrosian is described as co-founder and GP of The Sputnik Funds, and Lozovsky's bio lists Sputnik as one of his prior firms [DDQ26 §§1.7, 10.5].
• The Valuation Committee has two adviser members and one administrator member [DDQ26 §4].
• Trade errors. One in 2023 and two in 2025; the OMS was remediated afterwards [DDQ26 §3.1].
• Predecessor vehicle. The master fund began in 2010 as Salute Mission Fund (Salute Capital, which Lozovsky co-founded). It was restructured in Feb 2012 to realize "illiquid legacy positions" before the Feb 2013 relaunch [PPM26 p.15].
• Cross trades. The PPM allows trades with affiliated funds [PPM26 p.73].

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8. Known / Unknown / Ask Next

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9. Diligence Questions

Incentive Alignment

• Who is the "actual investor" behind the Class D series since 2018, and what fee terms did they pay? Why was the series switched in Dec 2024?
• How is a distressed position allocated between SGOF and the Select funds when both could hold it?
• Which investors hold side letters with fee or liquidity terms better than Class D?

Edge & Repeatability

• Excluding Argentina and Ukraine in 2023–24, what was the fund's return? Which strategies have worked in at least three separate vintages?
• With Lebanon, Venezuela and Argentine litigation as the core, how do you size positions whose outcomes are binary or depend on politics?

Performance & Drawdowns

• The drawdown target is 10%, but realized drawdowns were −20% and −11%. What changed in the process after each?
• The hedge book has lost money every year since 2020. What is it meant to protect against, and how is its cost budgeted?

Team Stability

• Who could run the book if Lozovsky were absent for 90 days? Has the investment committee ever overruled him?
• Why does the deck describe "team consistency since inception" when the DDQ discloses turnover?

Risk, Financing & Capacity

• Why has net exposure run above the stated 60–80% range since 2023?
• How was the remaining capacity of about $200m derived, and how much of the book could be sold in 30 days in a 2020-style stress?
• Who are the counterparties on the credit-linked notes (about 16% of NAV at YE2025)?

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10. Reference Check Prep

• Current investors (the 2017 wealth manager and the 2019 endowment): How were the 2020 and 2022 drawdowns communicated? Were you told about the Dec 2024 change in how the track record is presented?
• Former investors / Salute-era investors: How was the 2012 legacy-asset wind-down handled? Why did you leave?
• Former employees (the Head of Operations who left in 2021 and the analyst who left in 2022): How much of the decision-making is Lozovsky's alone? Do analysts ever push back?
• Service providers (SS&C, KPMG): Have there been price challenges or valuation disputes on distressed sovereigns or litigation claims?

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11. Suggested Materials Request List

1. Monthly NAV per share for every class and series, 2010–2026, reconciled to the audits. Also the investor statement behind the "actual Class D investor" series.
2. Salute Mission Fund and Salute Capital track record for 2010–2012, and how the legacy assets were realized.
3. P&L by strategy for 2013–2019, plus realized versus underwritten returns on exited positions.
4. Monthly gross and net exposure and country exposure history, 2013–2026, with the limit-breach log.
5. Side-letter summary, MFN terms, and the terms of Petrus and the Credit SMA.
6. Allocation policy between SGOF and the Select funds, and recent allocation records.
7. Form ADV Part 1 and Part 2B, SS&C SOC 1, the full compliance manual (only the TOC is in the folder), and the valuation committee minutes.
8. Staff list with joining and leaving dates, and the comp structure.
9. Reference list. The DDQ says it is "available upon request".

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12. Sources Reviewed

Current materials.

• Fund presentation, one-pager and Class D fact sheet (Sep 2026, data to 31 Aug 2026).
• Letter and fact sheet, Jul 2026.
• Investor call deck, May 2026. This is a slide deck; no transcript was provided.

Investment due diligence.

• Hit rates, investor concentration and composite investor report (Aug 2026).
• P&L by strategy, which covers 2020 to 2026 YTD despite its title.
• Internal risk report (31 Dec 2024) and GRA risk report (16 Dec 2024).
• Eight case studies dated Feb 2024–2026. The Nigeria Jan 2025 case study is image-only, could not be read and was not used.

Offering documents.

• PPM, Jul 2026.
• US feeder LPA, Jan 2025.
• Subscription, addition and withdrawal forms.
• Form ADV Part 2A, Mar 2026. The three copies in the folder are identical.

Operational due diligence.

• DDQ (30 Jun 2026), org chart (Sep 2026) and service-provider list (Jan 2026).
• Policies, Jun 2020–Jun 2025. For the compliance manual and the cybersecurity programme, only the tables of contents are included.
• Audited financials for 2021–2025 for the master fund and both feeders, all from KPMG.
• Registration numbers, legal structure chart, Cayman feeder articles (May 2017) and the US feeder certificate. The certificate is image-only and could not be read.

Investor letters. Monthly letters and fact sheets from Feb 2013 to Jul 2026. The Aug 2026 letter is not in the folder.

Prior work consulted for format only: none. No Coverage File exists for this fund.