Convertibles are back in fashion ... but how can they avoid the pitfalls of the past?
Just over a year ago the convertible bond market was reaching the trough of a painful adjustment. The UBS global convertible bond index dropped 6% in the first five months of 2005, despite relatively benign stock market conditions. Poor performance led many asset allocators to withdraw funds from convertible arbitrage, triggering a string of redemptions that accelerated the sell-off.
In the ensuing bloodbath some hedge funds, like Akela Capital and Marin Capital, were forced to shut up shop and
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