A shortage of primary convertibles issuance has moved synthetic convertible bonds out of obscurity and into near ubiquity among European institutional investors.
“Due to a shortage of corporate convertible bond issues in the European market, investors have turned to synthetic convertibles in droves, particularly outright (non-hedge fund) investors,” says John Feng, a consultant at Greenwich Associates, which conducted a recent study of the market.
According to Greenwich, almost 95% of long-only European institutions now invest in synthetic convertible bonds, while the proportion of hedge funds investing in the product is 22%.
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