Colonial First State Investments, the fund management arm of Commonwealth Bank of Australia, is looking to write credit-default swap protection on global names for its AUD1.2 billion (USD689 million) diversified credit fund. "It's an access and pricing issue," said Tony Adams, senior portfolio manager of credit funds in Sydney. "We'll use default swaps when they're cheaper than the physicals," he added.
Adams noted that the fund will likely become more active in its use of credit-default swaps, likely averaging five trades per month. So far, the firm has executed a handful of trades. He noted that Colonial First State will primarily look at the U.S. and European markets, where default swaps are more liquid, but added that it will also sell protection on Australian names in the coming months.
Adams said he speaks to a number of counterparties, declining to single out any particular firms. Pricing is the most important factor, especially for the less liquid credits, he added.
Commonwealth Bank of Australia merged with Colonial Limited last year, and in recent months integrated Commonwealth Investment Management, into Colonial First State. Commonwealth Investment Management had been interested in credit derivatives for sometime, and began gearing up at the start of the year (DW, 1/7).
