Introduction

The carry trade has been much maligned over the past 12 months. A key driver of hedge fund profits in recent years, the strategy blew up spectacularly last year, hit by mass unwinding by hedge funds desperate to meet investor redemptions. But it wasn't just hedge funds that suffered. A variety of structured products had been launched by banks referenced to proprietary, rule-based carry trade indexes. Unsurprisingly, these indexes performed terribly at the tail-end of last year, saddling priv