Client control

Is disintermediation coming to the collateralised debt obligation (CDO) market? Since their deregulation in the 1970s and 1980s, the major financial markets have typically moved from a paternalistic paradigm where a structurer/provider/ intermediary takes the blame or praise for the performance of a product, pocketing fees plus, usually, some lucrative but hidden basis, to a paradigm where clients are given more or less control (or blame) for the performance of the product they buy in return for more price transparency.

This trend is now manifesting itself in the CDO market. CDO structurers allow investors to choose between static and managed portfolios. They can choose cash, synthetic or hybrid structures. They can choose their favourite asset manager, and, with bespoke deals, they can even choose the specific collateral backing their deals.

Now, as Gallagher Polyn explains in Bespoke panacea? (Credit risk special report, page S4), dealers are also offering investors options that allow them to roll up