Deutsche Asset Management Australia, the Antipodean fund management arm of Deutsche Bank with USD40 billion under management, is in the early stages of studying the possibility of purchasing its first synthetic collateralized debt obligation and boosting its investment in credit derivatives for its AUD5 billion (USD2.87 billion) fixed-income portfolio. "Credit derivatives are a good way to improve the diversification of the underlying portfolio," said Bill Bovingdon, head of fixed-income in Sydney.
The fund manager is studying Australian dollar-denominated synthetic CDOs on a case-by-case basis, but Bovingdon said it will likely take some time before it invests. "It's still the early days," he added, declining to elaborate on potential structures.
Bovingdon said credit derivatives currently make up around 10% of the portfolio and that could rise to 15-20% within six-months. The asset manager primarily purchases credit-linked notes and sells credit-default protection on Australian names when they offer a more attractive yield than the underlying bonds.