AMP Henderson Global Investors (NZ), with AUD10.5 billion (USD5.7 billion) under management, plans in the next couple of weeks to become one of the first New Zealand asset management companies to use credit derivatives. It hopes to boost returns and diversify its risk profile by selling protection on Kiwi and Australian credits, using first-to-default and credit default swaps, said Chris Wozniak, head of fixed interest in Wellington.
AMP believes the time is right to plunge into the credit derivatives market because liquidity for Kiwi and Aussie names has improved, Wozniak explained. Credit derivatives give AMP an alternative to the domestic bond market, which is fairly illiquid with a limited selection of names. He declined to reveal which credits it plans to sell protection on.
AMP has so far priced a few deals, said Wozniak, declining comment on how any deal would likely be structured, other than it was looking at a two- to three-year maturity. He declined to reveal how large it expects its credit derivatives book to grow. He declined to comment on which banks have pitched the product but said it would likely use New Zealand or Australian banks with no less than AA- credit ratings. Access to credits and a track record in the credit derivatives market would also be a deciding factor, he continued.
AMP mainly uses interest-rate swaps in its fixed income portfolio, Wozniak said, declining to reveal the size of its derivatives book. Of its assets AUD4.5 billion are in fixed income, mainly domestic bonds. He declined to reveal what proportion are government or corporate and fixed- or floating-rate, but said that the average maturity is five years.
