From investor to manager

What do you do if you are an investor who wants to buy a single-tranche CDO, but you lack the requisite expertise to manage one? Increasingly, the answer is: ask an independent third party to do it for you.

With their cocktail of leverage and complex credit correlation risk, it’s not surprising that single-tranche collateralised debt obligations (CDOs) are becoming popular investments among the most savvy hedge fund managers. But now hedge funds’ role in this market is changing. As the wider buy-side takes a closer look at these bespoke deals, they are beginning to ask hedge funds – among others – to independently manage single-tranche deals on their behalf.

Chris Petherick, a Milwaukee-based