New Star Asset Management, a U.K. retail fund manager, is looking at offering single tranche collateralized debt obligations to investors. The fund manager, however, needs to be convinced there is demand for such a product. Ravi Anand, director in London, explained U.K. retail investors are not familiar with CDOs and it could be difficult to explain the product.
New Star is attracted to the deals because the asset manager could boost returns by actively managing the CDO. The possibility of defining the risk of the CDO also appeals, said Anand. "You know how many defaults need to occur before you lose any money," he added. However, although five or six defaults in a CDO of 100 names is technically low, to investors new to credit this could sound high. "I think it's a difficult sell," said Anand, who added New Star is unlikely to launch such a product before the end of this year.
