| CFO 101 |
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| 18/03/2007 | |
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Steven Le Moing, Head of CDO and Securitisation at SGAM AI answers this weeks 101 on CFOs What is a CFO Premium and why did you introduce it? A Collateralized Fund Obligation is a securitization product where the underlying collateral is a Fund of Hedge Funds. The Special Purpose Vehicle is refinanced through a full capital structure issuance composed of several tranches offering different risk/return profiles to investors. The debt rated tranches are typically ranging from AAA to BBB paying fixed spread coupons while the unrated equity tranche benefits from the underlying fund of hedge funds out performance. What are the advantages, returns and risks it offers to investors? The debt tranches offer a lot of advantages to fixed income investors: diversification from traditional asset classes, access to an asset class in which they might not be able to participate, attractive return linked to a limited risk on the underlying fund of hedge fund, potential attractive regulatory capital treatment. The equity tranche investors benefit from an efficient and stable term financing that translates into potential leveraged return on the underlying fund of hedge fund out performance. Do you expect for the market to develop further? The relative complexity of the structures certainly limits the appetite for CFOs, but given the growing convergence between structured finance investors and the hedge funds industry, the number of transactions is expected to expand. Additionally, the current low spread environment, the development of the hedge fund industry, the emergence of tailor made risk profiles are extremely supportive. What is the objective of such a strategy and what kind of investor should invest? The investor base is diverse. In addition to the normal private investors interests for leveraged exposure to fund of hedge funds, institutional investors, including banks, mutual funds and life insurance companies are also interested in both predictable cash flows and return upside linked to hedge fund performance. Investments in combinations of tranches, mixing risk/return profiles of both debt and equity tranches, have, for example, appealed to pension funds. |
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Articles of the same Serie : 101 |
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