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Alternative Market Briefing

EDHEC-Risk Institute explains Libor manipulation will have affected hedge fund performance fees

Wednesday, January 30, 2013

Beverly Chandler, Opalesque London: Writing for the EDHEC-Risk Institute’s Investment Management Review Dr Arjuna Sittampalam, Research Associate and Editor of the Review, has examined the consequences of the scandal over Libor rate rigging for asset managers.

"The post-mortem on the much-publicised Libor rate rigging scandal is well underway in the world’s financial capitals. What is important to fund managers is how the false rates might have affected investors in the past, and what their future options are in terms of Libor or a possible alternative for contracts based on short-term interest rates" Sittampalam says.

"Usage of Libor by asset managers is tiny compared with the overall volume of contracts where Libor figures, the most substantial proportion of which occur in the estimated $500tln derivatives market. Nevertheless, there are important contracts involving asset managers".

Depending on which side of the Libor contract they were on, Sittampalam explains that pension funds with interest rate swaps linked to Libor will have benefited or lost while a similar fate will apply to their purchasing loan agreements linked to Libor, packaged as asset-ba......................

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