The Ratings Agencies have played their part, and now its time for a more empirical view of credit ratings. This of course assumes that accurate spreads can be garnered for all the relevant securities, but it is a positive step in the right direction.
LONDON, May 1 (Reuters) - Goldman Sachs's (GS.N) fund arm is developing a new global credit strategy for institutions that will rely on market prices rather than heavily-criticised credit rating agencies.
"Clients often give investment guidelines determined by credit ratings, but we don't think that's the way to think about risk," said Andrew Wilson, global co-head of fixed income and currency at Goldman Sachs Asset Management (GSAM).
Instead, GSAM's approach is to segment credit spreads into five groups, to assess how issuers are trading in relation to their peers, 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."