Money managers under the microscope
News and views on the asset management industry from Reuters and elsewhere:
Convertible arbitrage is the hedge fund trade of the moment, with top-ranking returns of 12.58 percent so far this year, but there could be more to come.
The strategy, in which managers usually buy a convertible bond and short the underlying stock, is proving particularly profitable because the bonds are rebounding from the battering they took last year. The strategy lost 31.59 percent, the second-worst performing strategy, in 2008 as funds scrambled to sell their positions in what had become a crowded trade.
We perhaps know already that 2008 was the worst year ever for FoHFs, and that cumulative losses reached an all-time high as the year ended with a Madoff-shaped bang. Fitch also raises a fear that managers have shared after imposing redemption restrictions on clients wanting to stash their cash under the proverbial mattress: