INVESCO is looking at using credit derivatives in its cash credit funds and managing or investing in a synthetic high-yield collateralized debt obligation for the first time.
The asset manager has some USD80 billion in fixed income assets and within that several corporate credit funds with USD1 billion under management. Young Lee, v.p. in derivatives in New York, said the increase in the size of the credit derivatives market means it makes sense to deploy them in its general credit funds. "Credit derivatives are here to stay...It is coming into the mainstream."
In order to trade in its funds, INVESCO will have to get International Swaps and Derivatives Association master agreements in place for each fund. Lee, however, does not think this will be a problem.
On the CDO side, Lee said, there is a pretty high chance of making the move next year. He thinks the asset manager could either run a portfolio for its clients or purchase a self-managed deal through one of its collateralized debt obligations.
INVESCO closed its first synthetic CDO deal in May 2003 and has so far has launched one full cap structure deal and several single tranche transactions. Although it has some baskets for cross-over names in its deals, the bulk is always investment-grade credits. If Invesco decides to manage a high-yield CDO it will do so in partnership with its high-yield desk.