Daido Life Investment Trust Management, with over JPY300 billion (USD2.3 billion) under management, is considering purchasing credit-default protection for its JPY1 billion (USD7.5 million) domestic convertible bond portfolio, once it receives the okay from regulators. A fund manager at Daido in Tokyo said that as the convertible bond portfolio is part of a public fund, it is currently prohibited in Japan to use credit derivatives. However, the fund manager mentioned that this is currently being discussed internally, and he believes that within six months it will approach The Investment Trust Association, Japan, a self-regulating body for investment trusts, to get approval and possibly buy credit-default protection within 12 months.
The fund manager continued that he is keen to purchase protection in yen on over half of the portfolio to hedge against deteriorating credit quality in Japan. "Credit quality is getting worse," said the fund manager. He continued that typical brokers for convertibles include Nikko Salomon Smith Barney, Daiwa Securities Group and the Mizuho Financial Group. Daido chooses counterparties primarily on the quality of service and research.
