Mark Watts, global head of fixed income at Morley in London, said it decided to take the plunge because CDS are much more liquid than corporate bonds and the instruments widen Morley's credit management scope. "Those managers that are now using credit-default swaps are head and shoulders above the rest," said Watts. Morley has also started to field inquiries from clients who want access to credit derivatives, he noted.
Morley's first fund to use CDS has a launch penciled in for fourth quarter this year. Watts declined comment on the details of how the instruments will be used, because the fund manager is still talking to regulators and he said it is too early to say how big the fund might be. It will be the first of a suite, he noted, adding the UCITS III wrapper means the fund can be sold to retail investors as well as pension funds.
Institutional investors have been slow off the mark with using both credit derivatives and the greater investment powers afforded them under UCITS III, agreed Watts. The work required to get the fund manager's back and front office systems up to scratch has been considerable, he noted. Training traders and talking to investors has also taken time.
