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Convertible arbitrage resurface

Date: Wednesday, February 14, 2007
Author: James Mackintosh, FT.com

Convertible arb has returned from the dead. Two years after investors abandoned one of the pillars of the traditional hedge fund portfolio, convertible bond arbitrage is once again attracting interest and billions of dollars of new money.

Hedge funds specialising in convertible bonds produced their best performance since 2000 last year, returning as much as the previous three years combined. According to the Credit Suisse/Tremont hedge fund index, convertible arbitrage was the fourth-best performing strategy, producing an average return of 14.3 per cent. The fund shutdowns and withdrawals from the sector in 2005 have made it far simpler to make money.