Asset managers point to growing importance of credit derivatives

Dutch asset manager Robeco and London-based Cheyne Capital Management say knowledge developed through managing synthetics is allowing them to use credit derivatives more extensively. Both have new synthetic collateralised debt obligations (CDOs) in the pipeline.

The experience Robeco gained from managing a synthetic CDO has enabled it to build the expertise required to use credit derivatives on an ad hoc basis in its other credit portfolios, said Maurice Meijers, Rotterdam-based senior portfolio manager at Robeco.

Robeco is also looking at using credit derivatives to create new products like credit-neutral funds, where credit is traded in a similar way to how market-neutral funds trade stock - going long and short on different names in the same sector.

The Dutch asset manager’s first actively managed synthetic closed at the end of 2001, and was split equally between European and US reference entities. The new deal is more targeted - the majority of assets are European. Around $256 million of credit-linked notes will be issued.

Meanwhile, London-based convertible bond fund manager Cheyne made the decision to enter the managed synthetics market last summer. It hired David Peacock and John Weiss – previously senior members of Goldman Sachs’ credit derivatives team - as collateral managers back in January.

Cheyne’s new synthetic is backed by a $4.5 billion portfolio of debt, and it said use of credit derivatives could spill over from its forthcoming synthetic CDO to its other existing portfolios. “The simple act of using credit derivatives will lead to valuable information flow between the convertible bond and credit default swap sides of our business – which will be of benefit to us and our investors,” Peacock said.