Growing differences in US and European convertibles markets, says report

Hedge funds continued to expand their presence in the US convertibles market in 2004, with 74% of convertible user respondents to the Greenwich survey describing themselves as hedge funds. The percentage of European convertibles investors calling themselves hedge funds fell from 70% last year to 64% in 2004.

Hedge fund investors in US convertibles increased their average leverage ratios to 2.8 in 2004, up from 2.1 in 2003, according to Greenwich, reversing a previous decline from 3.1 in 2002. In Europe the ratio is down to 2.6 this year, continuing a downward trend of 4.6 in 2002 and 3.5 in 2003.

The average institutional investor in US convertibles securities held $1.6 billion in long market value convertible assets in 2004, up from $1.2 billion in 2003, driven partly by increased leverage levels among hedge fund investors, Greenwich said. This is in contrast to a slight drop in the long market value of European convertibles under institutional management, standing at $1.3 billion in 2004, from $1.5 billion in 2003.

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