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Derivatives

State Street Considers Aussie Credit Debut

State Street Global Advisors, Australia, part of the world's largest institutional asset management house, is considering trading credit derivatives for its domestic portfolios, which total some AUD40 billion (USD29.6 billion). "We're studying quant-style concepts and trading strategies," said Lawrence Dryden, head of asset allocation and currencies in Sydney. It is likely that the asset manager will incorporate credit derivatives as an additional investment tool next year, but has to do more research before making the decision. SSgA is in the early stages and is planning to gather more research from investment banks before deciding whether the instruments will gel with the remainder of its portfolio, according to Dryden.

Dryden said the firm could sell protection or short names via buying protection. "Sometimes it's easier to pick the dogs than the winners," he added. The asset manager may make the plunge within the coming months but, he declined further comment on the exact timing or likely allocation size.

Fergus Gilbert, chairman of the credit committee for the Australian Financial Markets Committee in Sydney, said SSgA's interest is part of a growing trend. Other prominent Australian fund managers looking at the instruments include Colonial First State Investments (DW, 12/8/02) and Deutsche Asset Management (DW, 4/20).

SSgA also uses foreign exchange derivatives and equity futures. State Street has nearly USD1 trillion under management globally.

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