Efeito no crédito

Este artigo do Financial Times fala sobre o efeito negativo dos hedge funds sobre o crédito, após um alerta da Fitch.

Fitch warns of negative 'hedge fund effect' on credit
By Stacy-Marie Ishmael

Published: June 7 2007 03:00 | Last updated: June 7 2007 03:00

Hedge funds are helping to fuel a global credit boom, but their growing influence on credit markets is likely to have negative consequences, a new report by Fitch Ratings has found.

Such funds now account for almost 60 per cent of trading volumes in credit default swaps - derivatives that provide a kind of insurance against non-payment on corporate debt. The CDS market has more than doubled in the past four years, according to Markit, the data group.

"Hedge funds' willingness to trade frequently, employ leverage, and invest in the more leveraged, risky areas of the credit markets magnifies their importance as a source of liquidity," the Fitch report said.

Credit-oriented strategies were one of the fastest areas of growth for hedge funds. They now have between $15,000bn and $18,000bn of assets deployed in the credit markets.

These numbers reflect high leverage multiples: hedge funds regularly borrow up to five and six times the value of their assets under management.

But the rising power of hedge funds in the credit markets has come at a cost, Fitch warned.

Innovations in the credit market, which has become a veritable alphabet soup of complex and illiquid structured products, have been largely driven by hedge funds' demand for products that generate higher returns. Funds have also been pressuring their prime brokers to continually relax credit terms, andprovide secured financing for their less liquid positions.

Consequently, investors face increased liquidity risk, since the next downturn could involve sudden and correlated declines in asset prices as funds and prime brokers try to unwind their positions.

"The potential for a more synchronous, forced unwind of credit assets cannot be discounted," Fitch said.

"During a period of market stress, any such forced selling of assets would be magnified by the effects of leverage."

Moreover, hedge funds have introduced a new and untested behavioural element into the markets. "Even if hedge funds retain the financial wherewithal to hold credit assets in a downturn, it is not clear whether they will have the willingness," Fitch said.

In short, hedge funds have made it even more difficult predict how credit markets would behave if prevailing benign conditions end.

This uncertainty is significant because, according to Fitch, even a temporary dislocation in the credit markets could lead to a rash of defaults, particularly among more marginal names with upcoming debt maturities.

Investors should therefore proceed with caution.

"Of concern would be an ill-timed event that led to a sudden reversal of this liquidity across multiple segments of the credit markets," Fitch said.