If all you have to do is post a link to the Economist to convince
people... ... good deal!
-
Martin

Michael Algernon wrote:
> Vitaliy
> You are brilliant and I wish you were president of the United States.
> How great that would be.
> Michael and Cedric
>
>
> On Oct 18, 2008, at 11:20 PM, Vitaliy wrote:
>
> http://www.economist.com/finance/displaystory.cfm?story_id=12381701
>
>
> An industry suffers, and regulators have not helped
>
> HEDGE funds are supposed to hedge. This year, they haven't. The
> fund-weighted composite index compiled by Hedge Fund Research, a firm  
> that
> tracks the industry, fell by 4.7% in September, the second-worst month  
> on
> record. Since the start of the year it has lost 9.4%. The industry's
> promises of "absolute returns" for investors now ring rather hollow.
>
> To be fair to them, hedge funds have not been allowed to hedge. The
> restrictions on short-selling (betting on falling prices) imposed by
> regulators round the globe have played havoc with managers' strategies  
> in
> recent weeks.
>
> Take the worst-performing strategy, convertible arbitrage, which lost  
> the
> average fund 12% in the month. Convertible bonds are fixed-income  
> securities
> that can be exchanged for shares in the issuing company. Historically,  
> these
> bonds have been underpriced, because too low a value has been placed  
> on the
> right to convert them to equity. So arbitrage managers have tended to  
> buy
> the bonds and sell short the shares. Thanks to the Securities and  
> Exchange
> Commission's ban on the shorting of more than 900 stocks from  
> September 19th
> to October 8th, that strategy no longer worked. And since the managers  
> could
> not short the shares, they had to sell the bonds. As a result, the  
> bonds'
> prices plunged.
>
> Perversely, issuing convertible bonds would have been one way for  
> banks to
> raise capital. But that route has been cut off, a typical example of the
> unintended consequences of meddling with the markets in response to  
> populist
> pressures.
>
>   

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