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Turmoil creates alpha opportunities
While many hedge funds have taken a hit to both their reputations and their bottom lines this year, Mellon Capital Management's Susan Kobayashi believes those with appropriate strategies can profit from the ongoing turmoil in credit markets.
Kobayashi, who was visiting Australia last week, has found herself among the very few hedge fund managers who can boast that their strategy has succeeded in keeping investors in positive territory.
The Credit Market Neutral Strategy employed by Koboyashi's MCM Credit Market Neutral Fund generated a net return of 8.28 per cent in 2008 - something she believes is sustainable through an equally challenging 2009.
Notwithstanding this positive return, Koboyashi acknowledged to Super Review last week that many institutional investors, such as superannuation funds, remained cautious with respect to hedge fund investment.
Koboyashi said the key to the strategy was trading in only the most liquid credit securities - something that enabled the fund to execute its trades, meaning the securities in its portfolio reflected true market value.
She said since its inception in 2007, the strategy had demonstrated the ability to generate alpha in a variety of market environments from the low volatility, tight spreads environment that prevailed at the beginning of 2007 through to the dramatically widening and tightening markets that followed.
Some of Koboyashi's confidence with respect to the strategy is based on her belief that the continuing turmoil in credit markets has simply created greater opportunities in circumstances where larger mis-pricings are occurring.
AUTHOR
Mike Taylor
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