Hedge Funds Invest in Debt

Date: Saturday, September 1, 2007
Author: Craig Sebastiano, Benefits Canada

Hedge funds generated almost 30% of U.S. fixed-income trading volume last year—double the 15% they accounted for in the prior 12-month period, according to a study by Greenwich Associates.

In past years, the company has documented the rise of hedge funds from minor players to significant sources of liquidity in certain fixed-income products.

However, the 2007 North American Fixed-Income Investors Study finds that the recent expansion of hedge fund positions and trading activity has been so rapid and consistent that it is now no exaggeration to say that hedge funds were no longer just an important part of the market in some fixed-income products—they were the market.

For example, hedge funds currently generate: more than 55% of U.S. trading volume in liquid or “flow” derivatives with investment-grade ratings and more than 80% in high-yield derivatives; more than 85% of U.S. trading volume in distressed debt; nearly 55% of U.S. trading volume in emerging market bonds; and more than 40% of U.S. leveraged loan trading volume.