WestAM is planning to make its first investments in credit derivatives for its fixed income portfolio as part of a broader trend toward investing more of its EUR2.7 billion (USD2.4 billion) fixed-income portfolio in the credit markets. Nigel Jenkins, head of global fixed-income and currency in London, said 15-20% of those assets are in corporate bonds and predicted that figure will rise above 50% in the next few years as the proportion of government debt dwindles. "We will be managing more portfolios with credit benchmarks and there is a role for credit derivatives for efficient portfolio management," he said. However, he stressed the asset manager has not made any synthetic credit investments to date and said none are imminent.
Still, Jenkins said the synthetic market offers opportunities the cash market does not. For example, WestAM could buy or sell protection on a basket of default swaps to reflect a particular view, rather than having to purchase each specific credit in a desired size in the cash market. "We see an increasing role for [credit derivatives] in our portfolio, but the majority of our investments are likely to be in cash bonds," he said. Jenkins added it would enter credit derivatives contracts with the same firms it buys bonds from, large banks such as Credit Suisse First Boston, Goldman Sachs and J.P. Morgan.
