HEDGE FUNDS HAVE not, in aggregate, done well in emerging markets. When times are good they can make money trading in and out of positions, but when times are bad they can blow up spectacularly – the prime example being the Russian default in 1998.
Today, however, times are good, and the hedge funds are back in the emerging-market asset class with a vengeance. Volumes are reaching levels not seen since 1997, and a whole new asset class – credit derivatives – has given market participants the ability to make the kind of trades they could only have dreamt of a few years ago.
A new breed of hedge fund is active in the market today: old-school funds like Soros and Tiger would make large directional bets but nowadays relative-value trades are more fashionable. All the same, says Steve Kenny, a trader at UBS in Stamford, "hedge funds and prop desks are driving...
