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came his partner in 1992 when they formed Stark Investments, also comes from Wisconsin.

The two main funds are multistrategy. In October 1994, Stark Investment LP was formed, and in July 1995, Shepherd Investments International began trading. About 60 percent of the firm's assets are in the former fund and 40 percent in the latter fund. There are a few specialty funds—a Japanese convertible arbitrage fund and another focusing on European convertible arbitrage. There is also a private placement arbitrage fund.

Trading from Milwaukee, Stark Investments has perhaps a more global focus than many of the superstar managers who are located in New York City. Since its inception, the firm has been active internationally. "The inefficiencies are greater internationally. In 1987, when I started, there were not many arbitrageurs. And those that were arbitrageurs were mostly U.S.-focused. The locals in those markets were less cognizant of arbitrage opportunities."

Much of that focus has been on Japan, which, along with the United States, is the biggest convertible bond market. Stark says that the European focus has historically been small because of lack of product and rich valuations. But in the past year that has changed. There are more issuances at attractive valuations.

Stark moves capital to where the most attractive opportunities exist. As a result, the percentage of focus that is U.S. to non-U.S. swings greatly. Historically the percentage is 65 percent non-U.S. to 35 percent U.S. Now the mix is about 70 percent non-U.S. and 30 percent U.S. The highest percentage the U.S. has ever been was about 65 percent, while twice non-U.S. was as high as 90 percent.

The first of those periods began around July 1987 and lasted until mid-year 1990. Stark had pretty much exited the U.S. markets at that time because of inability to find good value in the U.S. convertible market, the much greater inefficiencies in the non-U.S. markets at that time, his concern about U.S. equity valuations, and the degree of speculation occurring in the U.S. markets. Again, beginning in late 1993, Stark began significantly to reduce U.S. exposure. By the end of the first quarter of 1994, the firm was less than 10 percent exposed to the U.S. market. "Pricing in the U.S. convertible market had become quite rich by historical standards, and accordingly we did not believe U.S. convertibles would hold up to an adverse environment."