Major investors in Japan such as regional banks are expected to shift from static to managed synthetic collateralized debt obligations this year, following recent regulatory inquiries on risk management procedures.
"The [Financial Services Agency] has been visiting a lot of investors such as regional banks lately," said a marketing head at a Japanese house in Tokyo. The FSA has been investigating the risk management procedures for end investors holding CDO transactions in the last few months and is reportedly unsatisfied with the level of understanding from many investors. Investors have predominantly focused on single-tranche 100-name global CDO portfolios rather than domestic deals, given the persistent tight levels of spreads in the country. Bankers said that going forward end investors are expected to focus more on managed CDO portfolios which could reduce concerns of risk, given that poor credit-quality names could be removed from the portfolio.
"This has been picking up steam," noted a credit structurer at a bulge bracket house, adding the firm has been receiving inquiries for such deals. "If clients can't fully justify their investments to regulators and fully analyze the risks, it's a good thing they're focusing more on managed deals." Yoshiki Kamoto, spokesman at the FSA in Tokyo, did not return messages by press time.
