AXA Investment Managers is looking to use equity default swaps in its credit/equity arbitrage fund in the New Year. The instruments, launched byJPMorgan at the end of last year, are essentially deep out-of-the-money puts. Axa has EUR1.6 billion (USD1.97 billion) invested across a range of single funds and fund of funds.
Christophe Herpet, fund manager in Paris, expects liquidity of EDS to improve as houses other than JPMorgan start to trade the instruments. "It's just a matter of the liquidity of the bid/offer spread," said Herpet. JPMorgan has around 60-70% of the market, estimated Herpet and this limits the liquidity of EDS. The fund is also looking at trading equity variance swaps against credit index derivatives, but has no plans to execute such a trade in the near future.
