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Derivatives

Lion City Fund Manager Preps Credit Trading Debut

Pacific Asset Management, a Singapore-based fund manager with USD65 million in assets, is gearing up to start trading credit derivatives for the first time by year end. "Credit derivatives will allow us to increase our flexibility," said Desmond Soon, investment manager in the Lion City. He continued that the fund manager is looking to both purchase and write credit protection for its fixed-income portfolio and that the notional size could reach over USD50 million.

The fund manager will look to extend its mandate into credit derivatives in the coming months and should receive approval from clients before year end. "We've been doing a lot of preparatory work," he added, noting that the default-swap market has become liquid enough to utilize. Credit derivatives will permit the fund manager to purchase credits that are not available in the cash market as well as hedge existing bond positions. Pacific Asset Management had also been looking to structure a synthetic collateralized debt obligation earlier this year (DW, 4/22), but noted that with the difficulty of selling an equity tranche, it will likely look to issue a CDO next year as it is now focusing on trading credit-default swaps.

Pacific Asset Management is speaking to a number of counterparties for credit derivative transactions, said Soon, singling out Credit Suisse First Boston, Deutsche Bank and Merrill Lynch. Pricing is the most important factor for selecting a counterparty. Josephine Lee, spokeswoman at CSFB, Prakash Krishnan, spokesman at Deutsche Bank, and Bob Sherbin, spokesman at Merrill, did not return calls.

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