Are hedge funds really that risky as counterparties in collateralized trading?

As Peer to Peer markets make their play, credit departments at buy-side firms around the world are looking askance at the very idea of a collateralized trade directly with a hedge fund. At our FISL event, a pressing question in fact was, “how can I convince my credit department to buy into P2P?” Should the market really be concerned or are hedge funds no big deal?
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1 Comment. Leave new

  • Jeff Kidwell
    June 2, 2017 11:32 am

    As always, asking the right questions to stir up debate at the most opportune time in the market. That should be a Finadium logo somewhere! Just a couple thoughts on your musings: first, there is a category of potential P2P counterparties that may be a good fit for hedge funds, pension funds, who actually know hedge funds well and, in many cases, may even be investors in hedge funds. They probably have a person in their Credit Department dedicated to the hedge fund sector. So, while hedge funds may not work for ALL P2P counterparty sectors, as you rightly point out, they may work for other sectors. Second, while hedge funds may not work for ALL P2P counterparty sectors, there are other sectors besides hedge funds involved in P2P that could work. If an insurance company can’t, as you say, face a hedge fund, it may still work well with a State Treasurer, a rated Money Market Fund, a central bank, a pension fund, etc. P2P is not synonymous with just hedge funds. Most other sectors are also involved in P2P, besides hedge funds.

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