All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group

Hedge Funds Triple Role In Credit Market

Hedge funds have tripled their share of the credit derivatives market in the last two years, according to a draft of the British Bankers' Association's 2002 survey of the credit derivatives market, a copy of which was obtained by DW. In addition, banks, which made up nearly two-thirds of the market at the end of 1999, now only account for half and are predicted to total a mere 47% in 2004. The survey was conducted in London, but looked at firms' global portfolios. Officials at BBA declined comment.

Hedge funds now account for 12% of the credit derivatives market compared to 3% when the last survey was carried out in 1999. "This is not a drop in the volume of swaps executed by banks, this is an increase in the overall market," according to Jérôme Camblain, European head of sales for fixed income and derivatives at Bear Stearns in London. The new players include convertible arbitrage funds, which strip bonds down to their component parts using credit-default swaps; capital structure arbitrage hedge funds, which sell protection and buy equity puts; and credit hedge funds, which buy bonds and buy protection to take advantage of positive basis.

The growth has massively outstripped market expectations, the last survey predicted hedge funds would account for 4% of the volume. "High-profile bankruptcies and falling equities has highlighted the need for credit protection and produced arbitrage opportunities resulting in more hedge funds using credit derivatives," according to Pierre Mathieu, head of credit derivatives market making at BNP Paribas in London.


What Type Of Institutions (Will) Use
Credit Derivatives In Order To Buy Credit Protection?
  1999-2000 End of 1999 2002 2001-2002 End of 2001 2004
Banks 63% 51% 52% 47%
Securities Houses 18% 15% 21% 17%
Hedge Funds 3% 4% 12% 13%
Corporates 6% 10% 4% 7%
Mono-line/reinsurers Not included Not included 3% 4%
Insurance Companies 7% 11% 3% 4%
Mutual Funds 1% 3% 2% 3%
Pension Funds 1% 3% 1% 3%
Government/Export 1% 3% 2% 2%
credit agencies        
Source: 1999/2000 and 2000/2001 BBA Credit Derivatives Surveys

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree