This year has marked a rally in the convertibles sector and some good investment opportunities have started appearing, according to a report by Preqin.
This year has marked a rally in the convertibles sector and some good investment opportunities have started appearing, according to a report by Preqin.
Last year was a tough year for convertible arbitrage, with short selling bans, the nationalization of Fannie Mae and Freddie Mac, and the bankruptcy of Lehman Brothers.
Preqin says these factors all contributed to certain managers losing six years of performance returns in six months over the latter half of the year.
2008 saw a huge contraction in the number of managers running convertible arbitrage strategies, but, with fewer managers chasing these opportunities, many investors are seeing convertible arbitrage as a smart option, encouraged by the solid returns that managers have been producing over the first half of 2009.
The current investor interest in convertible arbitrage funds is dominated by funds of hedge funds in both North America and Europe. FoHFs are well equipped to react to the rapidly changing economic landscape, and convertible arbitrage funds have proved to be a good means of generating solid returns during 2009, says Preqin. Consequently, funds of funds are increasingly inclined to add these managers to their portfolios.
Providing convertible arbitrage continues to post consistent returns, and institutional confidence picks up, Preqins predict that other groups of institutional investors will begin to invest greater sums of capital into such funds and convertible arbitrage managers will be able to pick up new mandates from a broader spectrum of investors.
Preqin currently holds profiles for 141 investors with an active interest in convertible arbitrage, including 68 North America-based, 54 Europe-based and 19 Asia and rest of world-based institutions.
According to the report, the percentage of institutional hedge fund investors that state convertible arbitrage as a preference is 5.93 per cent. The average AUM of a convertible arbitrage investor is USD9,974m, while the average allocation to hedge funds of a convertible arbitrage investor is 19.8 per cent.
