JPMorgan has recently started offering bespoke managed credit-linked notes, similar to single tranches of managed synthetic collateralized debt obligations. Bespoke mezzanine tranches of CDOs have been structured before, but JPMorgan is thought to be the first firm to add an external manager. Christian Spieler, responsible for financial institutions derivatives marketing to Germany, Austria and Switzerland in London, said this brings the advantages of a manager, without the inflexibility. The innovation means JPMorgan is able to structure notes for which there is demand and is not left holding a series of unsold notes or having to gather all the investors before it executes a CDO, something which is a growing concern in the current credit environment.
Spieler thinks the product will be much more popular than static notes, because most investors want dedicated third party experts to chose and manage the portfolio as they can dedicated more resources to this than the end client. JPMorgan has already teamed up with Deutsche Asset Management and is in talks with two more fund managers, which it hopes to bring on board around year end, said Spieler. A typical managed pool will have around 100 names. In addition to investors choosing their risk/reward levels they can determine features such as, the level of capital protection, whether it has an equity or debt payout and whether it is a zero-coupon note or has quarterly payouts.
