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Derivatives

Aussie Fund Readies Credit Debut

BT Funds Management, a Sydney-based investment manager with over AUD34 billion (USD17 billion) under management, plans to start trading credit derivatives for its AUD1 billion (USD514 million) fixed-income portfolio within three months. Robert da Silva, head of corporate credit, said the fund manager is in the process of setting up the capabilities and preparing documentation for the effort. It is preparing the move now because of increased liquidity in credit-default swaps.

"We'll look for opportunities in terms of differences in credit and cash bond spreads," said da Silva, who is leading the effort. He continued that credit-default swaps will be used primarily as an investment tool but will also be used to hedge underlying bond positions. The firm will initially trade Australian credits but will later expand to U.S., Asian and European names. He said it is too early to determine the notional size of the trades.

Relationship and pricing are the two most important factors in selecting counterparties, according to da Silva, who declined to name specific firms it is talking to about credit derivatives.

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