Man Group Explores Convertible Arbitrage Strategy in Volatile Markets
Man Group PLC is reassessing convertible arbitrage strategies, believing they are suited for current market volatility and macroeconomic uncertainty. The firm sees potential benefits from increased market swings.
London – Investment firm Man Group PLC is highlighting the potential of convertible arbitrage strategies, suggesting they are well-positioned to navigate current market conditions. The company believes the era of persistently low volatility and interest rates following the 2008 financial crisis is evolving.
Man Group acknowledges that convertible arbitrage experienced significant drawdowns during the 2008 crisis, leading to reduced assets under management and fund closures. The subsequent period of suppressed volatility also hindered performance replication.
However, the firm argues that strategies in this space warrant renewed consideration. Increasing macroeconomic uncertainty, driven by factors like trade wars and negative yields, may usher in a new period of higher volatility. This environment could prove beneficial for convertible arbitrage.
While the core principles remain, the market for convertible bonds itself has evolved significantly over the past decade. Man Group notes that leverage in these strategies has substantially decreased since 2008, making positions leaner and less prone to extreme deleveraging events. Changes in primary issuance and characteristics of convertible bonds also present new opportunities.