Probably more news like this coming out... The hf world is getting too crowded... ================== Convertible arbitrage specialist sees few opportunities By Alistair Barr, MarketWatch Last Update: 3:15 PM ET June 15, 2005 E-mail it | Print | Alert | Reprint | SAN FRANCISCO (MarketWatch) -- Marin Capital Partners, a hedge fund that once oversaw about $2 billion in assets, is shutting down because the firm sees few opportunities in the convertible arbitrage and credit arbitrage strategies it follows. Marin, which has moved most of its investments into cash, will stop trading at the end of June and return money to investors in early July, according to a letter the firm sent to investors this week. "Due to a lack of suitable investment opportunities in the current market environment, and in our view an unfavorable risk/ reward situation in the relative value strategies we trade, Marin has moved the fund's portfolio largely into cash," Marin said in its letter, a copy of which was obtained by MarketWatch. "Because we do not expect the opportunities to return in the near future, we have decided to return all capital to our investors," the San Rafael, Calif.-based firm added in the letter. Anton Nicholas, a spokesman for the firm, confirmed Marin's intention to close on Wednesday but declined to comment further. Marin is the most high-profile hedge fund casualty of the funk in convertible bond markets. Convertible bonds pay a fixed yield like traditional corporate debt, but also let investors swap their note for stock of the issuing company at a predetermined price. More than 70% of trading in this market is by hedge funds that seek to exploit the spreads between the price of convertibles and their underlying stock, according to a Credit Suisse First Boston estimate in March. This overcrowding has left too many managers chasing a limited number of trading ideas, denting returns. It's also left many investors itching to dump their convertible-arbitrage hedge funds -- to the tune of $2.8 billion in this year's first quarter alone, according to data from Tremont Capital Management. Redemptions have forced some convertible hedge funds to sell positions in order to return money. That process has fueled further declines in convertible bond prices. Convertible arbitrage managers lost an average 1.55% in May, after shedding 3.13% in April, according to Tremont. A convertible arbitrage fund run by Greenwich, Conn.-based FrontPoint Partners has lost more than 18% in the first five months of 2005. The FrontPoint Convertible Arbitrage Fund has seen its assets wane from more than $100 million in 2004 to less than $85 million at the end of May. Calls to FrontPoint weren't returned Wednesday afternoon. Marin, founded in 1999 by John Hull and J.T. Hansen, said it was proud of its record, citing the performance of its flagship Tiburon Fund which had returned more than 98% with relatively low volatility since inception, according to the firm's letter. While some hedge-fund industry observers have been predicting a recovery by convertible arbitrage managers, Marin's decision suggests any rebound may take longer to emerge. "Without conviction that there will be near term opportunities to generate sufficient returns on your behalf using appropriately hedged strategies, it is only prudent to make the decision to close the fund," the firm said in its letter.