IXIS Corporate & Investment Bank is pitching a novel collateralized fund obligation which offers tranched exposure to a EUR1.55 billion French fund of hedge funds. It is believed to be the first rated CFO to reference an existing fund and the first to be launched out of Europe, credit officials said. Only a handful of CFOs have hit the market since their debut in 2002, including offerings from JPMorgan, UBS and Credit Suisse First Boston.
CFOs are uncommon because rating agencies impose strict conditions on the market value deals. Set liquidity and diversification levels must be maintained across the funds and--if breached--will trigger a pseudo default.
Richard Jacquet, head of structured credit marketing and sales at IXIS in Paris, said his firm solved these problems by choosing a high performing, low volatility fund and capping exposure at EUR300 million.
The fund is Phénix Alternative Holding, which invests in a portfolio of multi-asset hedge funds and is managed by paris-based AGF Alternative Asset Management. AGF AM will also manage the leverage of the CFO through the five years of the transaction. Officials at the firm could not be reached for comment. Four rated notes have been issued from the CFO and given preliminary ratings of Aaa to Baa2 by Moody's Investors Service and BBB to AAA by Fitch Ratings.
Jacquet noted the structure targets investors searching for alternative, rated exposure to hedge funds, namely European insurers, banks and asset managers. IXIS is also keen to replicate the trade and is investigating packaging exposure to private equity funds, he added. Phénix was priced last week and the equity slice has already been placed.
