The following story appeared in the April 2010 edition of AsianInvestor magazine. Paid subscribers can access this and other magazine stories here. For subscription enquiries, please contact our subscriptions team or call +852 2122 5222.

It certainly helped multi-strategy funds that all of the primary hedge-fund strategies finished in the black in 2009. For multi-strategy funds as a sector, there was only one drawdown month, of 0.85 basis points, in August 2009. As a whole, the multi-strategy sector came out ahead in 2009, on average by 20%. That followed a 16% average fall during 2008.

The volatility of the markets provided multi-strategy funds with the chance to look around for undervalued securities in the diverse instruments and markets that they cover, but they had to be quick on the button, as those openings would open and close swiftly.

"In general, we did not just stick to the portfolio as it went up and down. We traded around it as opportunities were created," says Eddie Tam, CIO of Hong Kong's CAI Global Fund. "Besides, one could not just hold on, because the indiscriminate sell-off created some interesting opportunities in short-dated convertibles."

Convertibles came back into vogue in 2009, as market conditions improved. It was almost impossible for anyone with cash on hand not to have made a substantial return while trading a convertible bond product. 2008 was a year when convertibles lost money due to de-leveraging and forced liquidation as balance sheets shrunk. In that liquidation process, prices overshot to the downside.

Also there were issuer credit concerns, as investors feared that companies would simply not be around in the future to repay their debt, hybrids or equity.

Those left standing in the convertible-bond markets regained their lost ground in 2009. One fund commented on its investors' perceptions in a way that illustrates just how nervous investors felt, and showing that as circumstances evolved, their worries merely hopped from one point of grievance and uncertainty across to another.

"In 2008 we spoke with investors saying... that they were not allocating money to convertibles," says this manager. "Our only guess was that at the time they were scared and in a panic mode while reducing risk and moving to cash.

"In 2009 we spoke with investors saying that they felt convertibles were not where they wanted to put their money," he adds. "At the end of 2009....

To see the rest of this article you need to be a subscriber. Access the magazine online here or contact our subscriptions team.