However the major risks faced by cash managers are default risk and liquidity risk. Term risk, which describes the probability that a credit spread will widen during the life of a security, is a contributor to these two. While there is much liquidity risk in the domestic market at the moment, term risk has also rattled managers as spreads on some AAA-rated residential mortgage-backed securities have widened from below 20 to well over 100 basis points, Korber says.
01/04/2008
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Alternatives
The chief investment officer of the $150 billion industry super fund says that Hostplus’ portfolio will weather the ongoing downturn in software companies and that moves by a number of large private credit managers to gate their funds are a result of the asset class being offered to retail investors who should not have assumed the funds would be liquid enough to get money out when everybody else is trying to do the same.
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