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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Constructive on capitalizing on cheapened convertible valuations and record primary issuance as stabilizing volatility and corporate balance sheet activity present compelling deployment opportunities across convertible structures."
During the third quarter, the Lazard Enhanced Opportunities Portfolio institutional shares returned -0.6% net of fees, outperforming its benchmark, the HFRX Global Hedge Fund Index, which declined 0.8%. Performance was supported by an effective interest rate hedge designed by the investment team that appreciated as benchmark Treasury yields increased substantially across the curve. However, performance faced headwinds from convertible basis cheapening, driven by a convergence of higher discount rates, compression in equity volatility across technology and artificial intelligence neocloud issuers, and wider corporate credit spreads. The macroeconomic environment was dominated by persistent upward pressure on rates following hawkish Federal Reserve commentary, the abandonment of forward guidance, and an additional quarter-point policy rate hike. Geopolitical tensions in the Middle East exacerbated cross-asset turbulence, temporarily pushing crude oil futures past $106 per barrel, while escalating concerns over US sovereign debt issuance added to yield pressures. Despite equity index gains led narrowly by mega-cap technology, broad market participation remained negative, generating sharp contractions in credit-sensitive and high-volatility convertible debt profiles. Portfolio attribution reflected positive contributions from Lumentum Holdings debt following solid earnings reports, alongside gains in Nebius Group convertible paper. Conversely, holdings in CoreWeave, Applied Optoelectronics, and SoFi Technologies detracted as underlying stock volatilities compressed. The team views current cheapened convertible valuations and heavy primary issuance as an opportune backdrop to deploy capital into discounted structures.
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