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Derivatives

Australian Fund Managers Readies Credit Debut

Portfolio Partners, a Melbourne-based fund manager with over AUD10 billion (USD5.65 billion) under management, is considering making its first use of credit derivatives to gain exposure to credits it cannot access via the cash market. "If we saw a tremendous opportunity in the default-swap market, we could get the documentation up and running fairly quickly," said John Hopper, senior manager of the AUD4 billion fixed-income portfolio. Portfolio Partners is currently "keeping abreast of developments in the market" and could trade default swaps within six months if investment opportunities arise.

The fund manager has been speaking to a number of investment banks about the product to gain further understanding, Hopper said, declining to name the firms. Portfolio Partners will choose counterparties based on several factors, including a minimum credit rating of AA minus and pricing.

"They're definitely a player in the credit market," said a credit derivatives trader, commenting on Portfolio Partners cash portfolio, which is primarily made up of domestic issues. The trader added, "This should be a natural extension for them."

Portfolio Partners is a member of U.K.-based Aviva, one of the world's largest insurance and investment groups with over GBP200 billion (USD306 billion) in assets under management.

 

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