Commonwealth Investment Management, the fund management arm of Commonwealth Bank of Australia, is preparing to trade credit derivatives for the first time. It will trade single-name credit-default swaps in about six weeks. "We're gearing up for this," said Tony Adams, senior portfolio manager in credit investment at Commonwealth Investment Management in Sydney. Adams continued that it will trade credit default swaps on global names, primarily selling protection, for its AUD1.1 billion (USD567 million) Commonwealth Diversified Credit Fund. The asset manager has AUD30 billion under management.
The firm has been eyeing the use of credit-default swaps since the launch of the fund 15 months ago but is now finalizing accounting procedures as well as preparing systems for the product. "We'll be an active user," continued Adams, noting that it will likely trade a few default swaps a month. He continued that default swaps will allow the investment manager to take exposure on names that it is not able to take in the underlying asset. "We'll look for exposure that we can't find in the bond market," added Adams. "U.S. securities houses will be the greatest provider," noted Adams, declining to name specific counterparties. However, he continued that pricing is the predominant factor in selecting a counterparty but availability of credits as well as the quality of research will also be taken into consideration.
