Arbitrage disruption hits hedge funds

``Arbitrage strategies at the heart of the hedge fund industry were decimated last week, as a combination of fire sales of assets by investment banks and worldwide restrictions on short-selling hit their profits. Convertible bond arbitrageurs had the worst performance of any hedge funds, as large portfolios of bonds were dumped into the market... heavy losses for convertible arbitrage, coupled with the removal of the funds’ ability to lower the risk of holding bonds by short selling the linked equity, could make it much more expensive for companies trying to raise capital through convertibles.''