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Bailey McCann, Opalesque New York for New Managers:

Two veteran portfolio managers are coming together with plans to launch a convertible bonds strategy. Stephen Puckowitz and William Ellsworth are now co-managing partners at Acme Century Capital Management. Puckowitz and Ellsworth both previously held roles at Admiral Capital Management, and worked together on credit strategies at Morgan Stanley and CIBC World Markets. Acme's approach builds on the work both men did together over their careers.

Acme's convertible bond arbitrage strategy seeks to take advantage of shifts in the convertible bond market to generate alpha. Puckowitz and Ellsworth argue that recent record issuance in the convertible bond market isn't temporary instead, it's a structural change that will have significant implications for corporates and investors.

According to Puckowitz and Ellsworth, updates to accounting rules have streamlined how convertible bonds are treated and if interest rates rise convertible bonds will be more competitive. These two trends could help keep new issuance elevated going forward and create fresh opportunities for arbitrage.

The men note that a significant portion of the convertible bond market is made up of companies that have been public for less than three years - offering limited visibility into how they might handle a significant and prolonged correction. More ......................

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