(Bloomberg) -- Distressed debt specialist Michael Sutton is teaming up with a former Deutsche Bank AG colleague for one of the biggest European hedge fund launches of the year. 

Sutton, who spent nearly two decades at the German bank, is joining Alex Mahler’s Alinor Capital Management, according to filings at the UK’s corporate registry. The fund is likely to launch with at least $500 million in assets, according to people familiar with the matter, who asked not to be identified discussing private information.

Alinor, set up by Mahler in July, will focus on debt tied to troubled corporations at a time when such stress is growing following sharp rises in borrowing costs. Yet the move stands out given hedge funds led by individuals are facing a tough capital raising environment as investors migrate toward the largest players.

Mahler and Sutton did not respond to repeated requests for comment by Bloomberg News. Mahler left Deutsche Bank this year to set up Alinor, according to his LinkedIn and public filings. A spokesperson for Deutsche Bank declined to comment.

The duo helped run Deutsche Bank’s Distressed Products Group business in Europe, a vital money maker seeking to profit from loans and bonds tied to the riskiest companies. Sutton was the Frankfurt-based lender’s European Distressed Head of Credit and Legal Analysis. In recent years, the bank has enjoyed some high-profile successes on bold distressed debt bets.

The group scored a big win betting on the recovery of Zim Integrated Shipping Services Ltd. It also spearheaded litigation over Lehman Brothers Holdings Inc. securities once discarded as worthless, but which are now set for a payout after a successful court appeal. And earlier this month, Deutsche Bank was among creditors that won a court case to take control of Spanish steelmaker Celsa after years of legal wrangling.

Some hedge funds led by individuals with pedigree have succeeded in convincing clients to back them, particularly those focused on combining multiple trading strategies to produce diversified and stable returns. For example, former Citadel traders Jonas Diedrich and Dave Sutton started trading with client assets of $1.85 billion on July 1 for their London-based Ilex Capital Partners.

Still, more than 2,500 hedge funds have been shuttered over the last five years, exceeding launches during the period, according to data compiled by Hedge Fund Research Inc. Investors pulled $2.7 billion from distressed funds through July this year, according to data compiled by eVestment.

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