Fitch Ratings says in a new report published today that credit asset managers are changing their investment strategies and product offerings in response to ongoing credit market dislocations.

In view of current yield levels, investment strategies are focused on carry and recovery trades, mainly through a buy-and-hold investment approach. Solid credit selection competencies are increasingly valued, particularly since the credit environment is likely to remain extremely challenging with reliance on historical default and recovery assumptions deemed particularly problematic. New investment offerings backed by credit products are expected to be simpler, more transparent and un-leveraged. Emphasis is likely to be put on assets of sustainable good credit quality (both financial and corporates) and investors still seem reluctant at this stage to re-invest in asset- or mortgage-backed securities.

"We expect new inflows from pension funds and insurance companies rather than leveraged bank-funded investors, who have left the market," says Aymeric Poizot, Head of Fitch's Fund and Asset Manager Rating Group in Europe. "These institutional investors, who have lower marked-to-market sensitivity and longer-term investment horizons, are more likely to increase their tactical allocation to credit assets and Fitch understands that some institutional investors are considering such a move."

"Credit asset managers currently face the challenge of adjusting or even re-building their credit management organisations, and of adapting their investment strategies, resources and infrastructure in order to exploit a rapidly changing credit market paradigm, which is a necessary condition for their long-term business viability," says Manuel Arrive, Senior Director in Fitch's Fund and Asset Manager Rating Group in Europe.