What lies beneath?

The bespoke credit products business is a big money-spinner for sophisticated dealers, but some investors are growing sceptical of pricing structures that seem to underestimate actual levels of risk. Navroz Patel reports

Dealers pitch portfolio credit products to investors as a safe way of staying afloat in the market, well away from the choppy waters of equities and bonds. And some dealers’ sophistication, combined with growing default swap liquidity, has enabled their desks to sell individual tranches of credit risk without issuing the remainder of the capital structure. During the past 18 months, these so-called bespoke mezzanine and equity tranches have become popular among yield-hungry