“The private equity firms, and some larger hedge funds, pension funds need to pay their liabilities to their pensioners. Right now the rate of return is close to zero if they’re in bonds.” said Craig Effron, “so they are going to start diversifying and put money into alternative asset classes, which are private equities and hedge funds, etc.”
Craig Effron believes that the pension exposures in U.S. are getting worse. “We think it’s the next front page news after Europe comes off.” explained Effron, “We think there is a bunch of states out there – they have some severe funding problems, and we are assure them to CDS as well.”
Effron believes credit default swap has been a great hedge method for the past 10 years. Though he has already lightened his CDS exposure a little bit in terms of cash bonds, Effron still believes CDS market is viable.