Shrinking asset swap market hits convertibles

Caution over creating special purpose vehicles (SPVs) used for asset swaps is having a negative impact on the already depressed convertible arbitrage market.

Asset swaps are the most effective way to hedge credit risk within a convertible arbitrage strategy, but the presence of this ability depends on financial institutions creating SPVs, something they are now reluctant to do post-Enron.

Dorothy Dewitt, co-manager of GAM's Multi-Arbitrage fund, says: 'Shareholders in those financial institutions

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