Hedge Funds Counterparty Risks
Hedge Funds Look to Minimize Bank Counterparty Risks
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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