Replacing managers of underperforming CDOs is not always effective, as managers taking over deals often find themselves bound to pre-existing asset allocations, according to Kingman Penniman, president of KDP Investment Advisors. In many deals the securities must be deemed as a credit risk for them to be sold, which translates as requiring that they have already been downgraded. This makes it difficult to come in as a new manager and trade out of bad assets.
CDO Structures Limits Management Flexibility
