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David Rich, Amida Capital Management's CIO said in an email obtained by Opalesque that the markets would be entering a very favourable period for convertible arbitrage as well as relative value. "Returns are usually cyclical and tend to improve in periods when markets move from an inefficient environment to one where value is more readily recognized. Arbitrage has had a good run YTD but the reasons that make this source of return attractive are still intact: (1) volatility is high but not unmanageably so (2) there are large amounts of exploitable inefficiencies for arbitrage and RV (3) exposure to the positive convexity of credit as bond floors return (4) financing costs are extremely low (5) better playing field with many competitors and banks out of converts."

David Rich's main contention is that hedge strategies are generally mispricing convergence strategies. They are not designed or implemented to control asset volatility, but to capitalize on asset volatility, which if properly managed will generate appealing risk adjusted returns. In essence, returns should be strong going forward regardless of where the S&P or spreads end up this year. This has already shown to be true as per the returns below: when the credit and equity markets were still falling in January and February of this year, David Special Opportunity Fund performed very well with each month positive in 2009 (28.3% up by July 20th). The fund was launched in February 2008 and was down 1.45% that year. ......................

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