Ever broader arb opportunities
KEVIN AKIOKA LIKES credit derivatives. In the past 18 months he has become much more comfortable investing in a product that he once would have regarded with scepticism. That's significant because his company is neither a hedge fund nor a total-return fund but a regular mutual fund with $50 billion in assets under management based in Los Angeles called Payden and Rygel. "Credit derivatives have definitely become a real market, and that's not something I would have said a few years ago," says Akioka, a senior fixed-income strategist. "From our side, a real money fund which is primarily long, it's another arrow in the quiver."
Akioka is just the kind of investor that proponents of credit derivatives – largely the big commercial banks and leading dealers – have for years been saying should start using them. Finally, it seems to be happening. "It's a very healthy market now in terms of types of users," says Jared Epstein, head of credit derivatives trading for Morgan Stanley in New York. "Insurance companies and traditional money managers used to account for less than 5% of total volume. That figure is much bigger now."