Credit for the masses
Faced with the declining profitability of traditional fixed income, asset managers have sought to beef up their credit teams to enable them to compete in the higher margin world of credit derivatives. But just how well do asset managers know these instruments, and are pension funds aware of the risks? Claire Milhench talks to some of the leading participants in the market and assesses the benefits and dangers of using these complex instruments.
This article appears courtesy of Global Investor
Getting to grips with credit derivatives for the first time can seem like drowning in a bowl of alphabet soup. There are ABS, MBS and CDOs, to say nothing of CDS, RMBS and WBS. But the impenetrability of the jargon is part of the attraction for fixed income managers who know their stuff. Because the more complex and technical the instrument, the less likely it is that there are thousands of other managers out there competing for the same plays.