A top US fund manager is on the hook for billions if Russia defaults due to economic sanctions being imposed, it was claimed yesterday.
California-based Pimco has underwritten credit swaps, a derivative that protects holders of sovereign bonds, worth at least US$1bn while also holding $1.5bn of its Russian debt Itself, according to the FT.
At least five Pimco funds sold the CDS to investors, according to the report, which analysed the fund manager’s holdings at the end of 2021.
Pimco also has an additional $1.5bn of government bonds tied to the Russian Federation, according to Bloomberg.
Issuers of CDS are effectively betting that a country does not default and that Russia would pay its creditors in this case.
Pimco, which will also have to take a hit on its proprietary position if Russia does halt payments, has already written down its positions according to the report.
The asset manager had more than $2.2tn in assets under management at year’s end with most of the Russian CDS held within the $140bn Income fund.
Russia’s sovereign debt prices have tumbled after the West imposed severe sanctions following the invasion of Ukraine.