By any standards, losing 80% of anything is a disaster, one that observers say KBC Alternative Investment Management could have avoided had it been more flexible in its approach to hedge funds. According to Financial News, the single-manager HF division of the Belgian bank KBC went from $5 billion AUM about 18 months ago to $1 billion today, as investors ran for the doors after poor returns started coming in two years ago.

One has to guess that convertible arbitrage had something to do with it, as KBC AIM was founded on that strategy. But former investors told FN that the firm should have seen the fall of convertible arb coming as other HFs had and change course. Instead, it stuck to its guns and paid for it dearly. One convertible arb manager rival, who made money while others were losing, said KBC “would rely on quantitative models to find a tiny anomaly and put billions on it.” The manager comments that he didn’t think the firm “had the experience to withdraw or to develop other approaches. Once it had got into the hole, it couldn’t get out.”

But investors did. KBC AIM’s new chief investment officer, Carlo Georg, denies claims that the firm’s lack of imagination contributed to its crash course, though he admits they were “too big in convertible arbitrage when returns were declining and clients were redeeming.” The bleeding may have stopped for now, and Georg says he is looking to rebuild the firm by taking advantage of “a market for mid-teen investment performance with low volatility” that he says will be “superior to rival products.”