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Hedge Funds Banks Counterparty Risks

Hedge Funds Counterparty Risks 

Hedge Funds Look to Minimize Bank Counterparty Risks 

Hedge funds are looking at the cost of insuring banks against default as a measure of counterparty risk in order to avoid the type of confusion and losses that occurred during the financial crisis when Lehman Brothers collapsed.  Hedge funds are also spreading out their counterparty risk by working with multiple prime brokers instead of exclusively the power houses like Goldman Sachs (GS.N) and Morgan Stanley (MS.N).
Hedge funds, keen to placate investors still angry about past losses, are now closely watching the cost of insuring bank debt against default as a gauge of counterparty risk. This is measured by derivatives known as credit default swaps (CDS). 
"I'd expect people to have been monitoring it... and some people will definitely have done something about it," said one hedge fund executive, asking not to be named. 
The cost of insuring the debt of banks such as Morgan Stanley (MS.N) and Bank of America Merrill Lynch (BAC.N) is now double that of some rivals. 
"It's a major issue," said one investor in hedge funds. "No-one wants to be put in the same situation again (as with Lehman). The wounds are still too fresh." Source

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http://richard-wilson.blogspot.com/2011/10/hedge-funds-banks-counterparty-risks.html
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