Funds Hub

Money managers under the microscope

Fewer arbs to iron out the bumps


rtryqvsThe decline in the hedge fund industry is starting to impact some markets in which these free-wheeling vehicles once played, as Jane Baird’s article “CDS price quirks abound as arbitrage withers” demonstates.

She points out that the $45 trillion credit derivatives market is now full of pricing quirks because many hedge funds, once big arbitrageurs in the sector, no longer play here.

Hedge funds have chosen or been forced to cut back on borrowing, while many must sell their holdings to meet client demands to withdraw cash.

Meanwhile, many banks are scaling back their proprietary trading desks as they cut costs during the downturn.