European Credit Management plans to launch a credit default swaps long/short fund in the next few months to meet increasing demand from institutional clients. As pension funds seek absolute returns, "CDS can provide that by isolating the credit risk," said Joseph Biernat, director of research in London.
Credit default swaps may still be an unknown territory for pension funds, but Biernat predicts CDS will grow as institutional investors seek alternatives to conventional fixed income. The CDS market was pegged at $17 trillion at the end of last year, growing 39% in the second half of 2005 alone.
Final details of the new fund have not yet been established, but Biernat said it will aim for a return target of 1-2% over LIBOR.