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Portfolio > Alternative Investments > Hedge Funds

CDO Survey Under Way

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CHICAGO (–By popular demand, Janet Tavakoli is completing an industry survey on the management and best practices related to the offering of collateralized debt obligations.

Ms. Tavakoli–a consultant and expert witness on credit derivatives issues, a published author and speaker on the pitfalls of credit mismanagement and its implications– is well known for her skepticism about some industry practices.

CDOs have grown in popularity among hedge funds in recent years, even after the highly publicized Securities and Exchange Commission case against Beacon Hill Asset Management that charged principals with manipulative pricing of debt securities.

According to a Fitch report released last summer, hedge funds are more likely to invest in illiquid market segments that promise greater returns. Fitch analysts said that hedge funds had become “significant” buyers of subordinated debt and equity tranches of CDOs and certain synthetic structures that can add a layer of complexity to the credit markets.

Ms. Tavakoli said that other industry surveys neglect to ask investors what they are looking for in a CDO manager, which might be a hedge fund, investment bank or a sub-group within a bank that manages CDO portfolios. The response she’s gotten to her survey so far has been huge, she added.

She is covering a wide range issues including: infrastructure set-up; warehousing (collection of collateral prior to the deal) and ramp-up; deal closing and management; evidence of management expertise; and voluntary disclosures.

All the information collected will be considered confidential, Ms. Tavakoli said, and will be gathered from investors, arrangers, issuers and managers of CDOs. The summary report is targeted for release to Tavakoli Structured Finance clients and survey participants by October.

Contact Bob Keane with questions or comments at [email protected].


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