BlueMountain Capital Management's James E. Staley said banksremoving risk from their balance sheets has caused a “virtualexplosion” in the U.S. corporate debt markets.

The amount of company debt issued has doubled since 2008, Staleysaid in a Bloomberg Television interview Tuesday at the MilkenInstitute Global Conference in Beverly Hills, California. Theexpansion, helped by record low borrowing costs, is also beingdriven by mutual funds, which account for about 80 percent ofgrowth in debt markets, he said.

“Retail investors and institutional investors looking for thatyield have put money into mutual funds, and mutual funds have putthat money to work supporting the corporate debt market,” saidStaley, who worked at JPMorgan Chase & Co. before joiningBlueMountain as a managing partner in January 2013. He had oncebeen seen as a potential successor to the bank's chief executiveofficer, Jamie Dimon.

Liquidity and transparency in the corporate debt market havedecreased after regulation forced banks to give up such holdings,and synthetic credit usage has declined, Staley said.

To improve those factors, credit markets should more closelyresemble equities, he said. Increasing the use of creditderivatives, which came under fire during the 2008 financialcrisis, can also help standardize debt issuance, Staley said.

“Synthetic credit is sort of like a prescription drug,” he said.“If they're misused, they're not good, but if they're used properlythey can provide a lot to the system.”

A 2013 report by McKinsey & Co. and Greenwich Associatesconcluded that the corporate bond market is unlikely to everresemble cash equities.

Assets at New York-based BlueMountain have jumped about fourfoldto $20 billion since June 2009.

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