Sumitomo Mitsui Asset Management, expected to be Japan's largest asset manager with around USD100 billion under management when a merger of several Japanese investment firms comes into effect next month, will consider using credit derivatives for the first time. "We're closely monitoring this market," said Makoto Takahashi, head of the fixed income group at Sumitomo Life Investment Co., Japan's largest investment advisory firm with over JPY8 trillion in assets and one of the companies that will form the new entity.
Sumitomo Life Investment currently invests in corporate domestic bonds and follows credit-default swap spreads to track credit quality. Takahashi said the merged firm will likely invest in yen-denominated synthetic collateralized debt obligations as well as selling credit protection to boost performance.
The merged asset manager could pull the trigger on its first credit derivative within a year. Takahashi said the firm is still in the initial exploratory stage and declined to elaborate on specific products or the potential size of investments.
The asset manager will select counterparties according to pricing and is already speaking with several firms, which Takahashi declined to name. "This will definitely be on everyone's radar screens," said a senior credit derivatives trader at a bulge bracket house in Tokyo.
"The merger will happen in December," explained Yosuke Higuchi, in the corporate services department at Sumitomo Life Investment. Sumitomo Life Investment will merge with Mitsui Life Global Asset Management Co., Mitsui Sumitomo Insurance Asset Management, Sakura Investment Management and Sumisei Global Investment Trust Management Co. to form the company.
