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Derivatives

Pru Tests Water On Fund Launch

Prudential Investments Japan, with a fixed-income portfolio of JPY100 billion (USD806 million), plans to launch a fixed-income fund in Japan that will purchase credit-linked notes and synthetic and cash collateralized debt obligations if there is enough demand. "We'll be conducting a feasibility study," said Mayuka Tomizuka, in the investment management department in Tokyo, noting that the decision will come down to the level of demand among its Japanese institutional clients. If there is strong demand the fund could launch in the latter part of next year. The manager has not established a target size or return for the fund, according to Tomizuka.

Prudential wants to invest in the instruments because they offer an attractive yield relative to plain-vanilla fixed-income products and would increase the diversification of the portfolio. It is looking at the instruments now because more derivatives houses have started offering them in Japan and it has started to become an established market. However, Tomizuka does not envisage purchasing and selling credit-default swaps because there are no established accounting guidelines for investment trusts in Japan to invest in them.

The asset manager would launch a new fund to use the products as none of its existing funds allow it to invest in synthetic credit products. She added that pricing is the most important factor in selecting counterparties.

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