Firms offering constant proportion debt obligations are likely to start pairing the format--which includes high coupons and high ratings--with portfolios that have been used for constant proportion portfolio insurance.
UBS, for example, is understood to be working on a CPDO that would mirror a CPPI fund the firm structured with a long/short strategy on the iTraxx IG and HiVol indices. UBS officials declined comment.
The idea behind the UBS structure, according to an official familiar with the offering, is to go long the iTraxx or CDX and short their high volatility counterpart. This is done by selling protection on IG and buying protection on High Vol. The buy/sell ratios would be adjusted by a manager, as the index rolling technology of the CPDO adds another layer to the strategy.
