John Hancock Financial Services is planning to make its debut as a manager of synthetic collateralized debt obligations. The asset manager is waiting for market conditions to improve and accounting rules to be clarified before launching the product. Mark Goldman, senior actuarial associate in Boston, Mass., said the firm has already made headway on what will be its first deal, likely in the USD1 billion (notional) range and which will reference a pool of investment grade credits. The firm wants to see improved arbitrage opportunities before bringing the deal to market.
John Hancock is also waiting to see if it will have to consolidate the structure on its balance sheet under Financial Interpretations accounting rule 46, known as Fin 46, before making the plunge.
The move is a logical step for the firm because it has garnered a good reputation from its management of cash CDOs, said Goldman. Structuring synthetic deals will also provide diversification from its traditional spread lending and credit businesses, he added. John Hancock already manages a series of six collateralized bond obligations, dubbed Signature. The firm would likely buy most of the equity tranche of the CDO, which it plans to have publicly rated, as a means of participating in the product's gains, he added.
The firm has not yet signed with a dealer for the new structure, although it is working closely with one firm, which Goldman declined to name. Any dealer the firm signs with will be selected by factors including service, price and responsiveness. John Hancock is a blue chip manager with a solid reputation, noted one credit derivatives professional, adding that the manager would likely succeed in attracting a lot of interest to its synthetic structure.
