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May 25, 2009

Goldman evolves alternative to bond ratings

From the Reuters report on Goldman Sachs Asset Management's (GSAM) move to use credit market movements - instead of ratings from agencies like S&P and Moody's - to assess the credit risk of corporate bonds:
GSAM's approach is to segment credit spreads into five groups, to assess how issuers are trading in relation to their peers, (GSM global co-head of fixed income and currency Andrew Wilson) told Reuters in an interview. "So the widest 20 percent are the most risky, regardless of the rating," he said. "That has helped us identify risky names and react in a timely fashion, as the market is a much better guide. Credit spreads widen immediately on bad news, whereas it might take a while for the ratings agencies to reflect that."

... Wilson said that relying on names which are rated 'triple B' and above - the traditional way of framing investment grade mandates - had not been that helpful. "Ratings agencies are good at static analysis but they are less good at forecasting," he said.

Related: Debate at FT Alphaville on GSAM's move.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in