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August 04, 2005 at 08:00 PM
NEW YORK (HedgeWorld.com)–Nine out of 10 managers who have launched capital structure arbitrage strategy businesses have failed to build an adequate infrastructure beforehand, according to new research from Carbon360.
The firm will be releasing a full study on the topic of capital arbitrage operations shortly, and so far researchers have found that running such a strategy is costly in terms of personnel, service provider relationships and systems.
According to an executive summary of its upcoming study, Carbon360 has found instances where fund administrators have terminated relationships with managers due to the pressure of handling the settlement and payment processing associated with the strategy.
The increased pressure arises from the instruments managers use. Capital structure arbitrage is a hedge fund strategy that takes advantage of pricing inefficiencies between the debt and equity structure within a specific company. The financial instruments cap arb players use often carry settlement risk because there are long settlement cycles on almost all over-the-counter and loan products.
