A Perspective on Convertible Arbitrage

Abstract

Convertible arbitrage is an often-used hedge fund strategy that utilizes convertible securities as part of a diversified alternative investment portfolio. This article's objective is to highlight the strategy and shed some light on the changes that are likely to impact it in the future. A brief strategy description will enable readers who may be unfamiliar with it to understand what is required in order to profit from such a strategy. Discussion of overall historical performance and how investors have fared is also included. The market for convertibles is global with the predominance of activity in the United States, Europe, and Japan, while other parts of Asia and other emerging countries do offer some opportunities. Many changes have occurred within these markets, specifically as they relate to the strategy, and the author discusses some of these changes and the potential impact, in addition to current investor concerns. Lastly, this article presents a strategy outlook based upon the current state of the convertibles market.