Convertibles crash to earth
Just how did this stable-but-dull strategy hit a
period of such turbulence?
You know it's a bad time to be running a
convertible arbitrage hedge fund when a loss of 2% is
considered a good return. Indeed, words like "bloodbath"
routinely pop up in conversations about the performance of
these funds in 2005, particularly in March and April. According
to the Absolute Return convertible arbitrage index, these funds
were down a collective 1.57% in March and 2.75% in April. But
those numbers don't tell the whole story.
Some of the heretofore best and brightest in the industry
have posted individual losses that are mind-boggling for
convertible arbitrage funds, such as Alta Partners' 3.20% loss
in its Discount Convertible Arbitrage Fund (bringing its
year-to-date losses to 8.60%) and Argent's 18.96% loss in the B
share class of its Argent Classic Convertible Arbitrage Fund