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Exec Launches Credit Derivatives Consulting Firm

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CHICAGO (–A financial engineering executive, Janet Tavakoli, opened a new consulting firm catering to hedge funds, banks, insurance companies and mutual funds.

Ms. Tavakoli formed the company, Tavakoli Structured Finance Inc., to assist investors with the variety of complicated over-the-counter deals related to credit, such as synthetic collateralized debt obligations. She previously worked for Westdeutsche Landesbank, London, where she was executive director, head of financial engineering for global financial markets. She left WestLB in July.

Hedge funds increasingly are using credit derivatives, which are attractive for their ability to provide leverage and for their off-balance-sheet status, she said. Say a long/short equity manager is bullish on a company but doesn’t trade the equity for market-related reasons. That manager can get attractive exposure to that company by swapping into its credit exposure using a credit derivatives swap and can do so with a lot of leverage, she said.

But she said the complexity of credit derivatives is likely to lead some investors to get burned, if they act without understanding them fully.

Moreover, she noted, much of the credit derivatives market activity among hedge funds is flying underneath the radar of industry analysis. “It’s an asset class that isn’t [followed] by people who track hedge funds,” she said.

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