THE CREDIT CRUNCH and repricing of credit have shifted the terms of trade in the capital markets dramatically in favour of the real-money buy side. For a long time they had been price takers. Now the unprecedented deleveraging of the financial system has given traditional investors a massive opportunity to purchase paper at attractive spreads. But the levels of volatility and market dislocation have also proved dangerous to them. None was immune to the effects of the huge withdrawal of liquidity from the global financial system and the transition of assets from levered to unlevered balance sheets. That said, it appears, though, that almost all of the largest investors were wary of the extremely tight credit spreads.
"At DB Advisors, we had significant bearish views on credit markets, so overall we tried to get out of the lower ratings," says Georg Schuh, chief investment officer, institutionals, at DB Advisors. DB Advisors was formally known as Deutsche Asset Management and is the biggest German fixed-income investor. The origins of its cautious stance can be traced to 2005 when GM and Ford were downgraded to sub-investment grade.