Bear Stearns is considering structuring its first synthetic collateralized fund obligation referenced to a basket of hedge funds, according to an official familiar with its plans. The deal is expected to hit the market in the second half of the year, probably in the fourth quarter. Officials at Bear Stearns in London declined all comment.
The size of the deal has not been set. Credit Suisse First Boston is marketing a similar structure valued at USD500 million.
Bear Stearns has an advantage in marketing this type of deal over other firms because of its strong prime brokerage franchise, according to the official. Its knowledge in tracking and understanding the risk/reward of the funds will give it an edge, even though there will be an asset manager selecting the funds, he added. A rival structurer said that a Chinese wall between the prime brokerage desk and the structuring department means Bear Stearns will not be privy to information before other investors so it should not have a pricing advantage. However, investors that associate Bear Stearns' name with hedge funds may be more willing to look at the asset class.
Separately, the firm is also working on initial proposals for two investment-grade managed synthetic collateralized debt obligations, according to an official. The firm is in talks with two European commercial banks, which would act as managers, for the EUR1 billion (USD909 million) CDOs. These deals will both have five-year maturities and are expected to price late this year. The official declined to name the European banks.
