CDS boost for pensions

Pension fund managers have traditionally shied away from credit derivatives. But in the current climate of ultra-narrow spreads, trying to outperform the market without using credit default swaps could prove to be a major handicap

With a huge pension fund deficit across Europe - at last count, the gap in the UK alone was nearly £100 billion ($178 billion), says Mercer Consulting - the pension fund sector is under intense scrutiny. While some fund managers have sought to address the problem through more tailored investment solutions, such as using more financial derivatives, pension funds have thus far lagged behind the wider buy side in using credit derivatives.

Yet there are signs that the situation may be about to change