Commonwealth Investment Management, a division of Australia's Commonwealth Bank Group with AUD34 billion (USD17 billion) in assets under management, expects to make its first use of credit-linked notes and credit default swaps on Aussie names. Francois Kong, head of fixed interest in Sydney, said the firm is studying using such instruments particularly for its AUD1 billion high-yield fund, to hedge credit risk, as well as to gain synthetic exposure to certain credits. The investment manager plans to throw the internally seeded fund open to external investors and anticipates using credit derivatives as the fund grows.
An official at Commonwealth continued that credit instruments would provide a means to get exposure to names that do not issue public debt. He declined to give examples. Commonwealth uses equity futures and options and interest-rate swaps for hedging and to take positions. "We're open-minded towards the use of derivatives," he added.
Potential credit derivatives counterparties include Morgan Stanley, UBS Warburg and Credit Suisse First Boston. Kong declined further comment. Officials at the firms declined comment or did not return calls.
