arbitrage, one of this year's best performing strategies, faces
a fresh onslaught as credit markets seize up
By Pete Gallo
Fixed-income markets thrown into disarray by the
government's recent takeover of Freddie Mac, Fannie Mae and the
American International Group (not to mention the demise of
Lehman Brothers) are posing serious challenges to fixed-income
hedge funds, whose steady performance has, until recently,
provided investors a haven from this year's tough markets.
At least one fixed-income heavyweight, John Meriwether's JWM
Partners, has talked about winding down on big losses (his
Relative Value Opportunity II fund gave up 26% through August),
while earlier volatility took down Drake Global Opportunities,
a fixed-income macro fund.
As a group, however, fixed-income funds entered September's
maelstrom on strong footing. That's because exploding
volatility gave a lift to relative value trading strategies,
which seek to identify small price differences between similar
securities and make highly leveraged bets that...