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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Perspective who wrote (37923)	8/5/2005 5:56:40 PM
From: Ramsey Su	Read Replies (1) \| Respond to of 110194

From the Fitch report recently posted here ......... In the past few years, hedge funds have emerged as a dominant force in the capital markets, benefiting from a relatively benign environment of low interest rates and easy credit. This environment has allowed hedge funds to pursue a wide range of investment strategies, with short-term financing provided by banks and investment banks. Hedge funds now are estimated to drive up to 25% of revenues for many of the larger global banks. At the same time, investments in the credit markets continue to grow, with hedge funds controlling as much as 30% of the trading volume in high yield bonds and 26% of leveraged loans, according to a recent survey by Greenwich Associates (see Punching Above Their Weight: 2004 Hedge Fund Trading Volume chart, page 2)..................... ............For example, in a subprime residential mortgagebacked securities (RMBS) transaction, the ‘BBB’ and lower rated tranches of risk may only represent 7% of the total capital structure. Assuming $10 million of capital leveraged at 5.0x through margin lending, a hedge fund could effectively achieve first loss exposure to more than $850 million of residential mortgages, although any loss would be capped at the amount of the initial investment, or $60 million in this example and could be diversified across multiple transactions (see Employing Economic Leverage chart, page 2).