Crédit Agricole Asset Management, a French fund manager with EUR355.1 billion under management, is gearing up to manage a capital-protected portfolio of credit-default swaps and cash assets. The portfolio will be wrapped as a 10-year note, structured and marketed by BNP Paribas, using constant proportion portfolio insurance to protect capital invested. BNP is also providing a gap-risk guarantee on the note. The deal, named Dynamo because of the dynamic effect of CPPI, will launch next month.
Hérve Boiral, euro credit portfolio manager at CAAM in Paris, said, "This structure is very different from the CDO perspective because the portfolio is very actively managed." He explained the note should be attractive to investors because there is no limit on the turnover in the managed credit fund and he can choose sector exposure. "We can pick and choose our exposure to global credit from 0% to 100%," he added.
The CDS in the portfolio will be managed and will reference high-yield, emerging market and investment-grade entities and the majority of the trades will have a maturity of five years. "There will also be seven- and 10-year maturities and if the credit curve is flat we will trade three-year maturities," Boiral said, adding, "It's very flexible." CAAM also has the ability to purchase a bond for the fund and then buy protection on the name through CDS. "We can also hedge the duration of the bond so there is no interest rate risk," he noted.
The deal is being marketed by BNP Paribas to institutional clients in Europe with a view to push into Asia in the future. An official at BNP Paribas said the deal was new to the market and was a more attractive trade for investors than CDOs because it is more closely monitored and easier to comprehend.
