Chubb Financial Products, the structured products subsidiary ofThe Chubb Corp., is working on more than five synthetic double-trigger collateralized debt obligations, two collateralized fund obligations and several other cash and synthetic deals, with the first CDOs expected in the coming months. Chubb has put together CDOs before, but this marks a major initiative to become a securitization and bespoke products house. The firm plans to ramp up its revenues from tailor-made products to 50% from 10% of its business, said Matt Cooleen, head of financial products in New York.
Cooleen is planning to hire at least seven professionals, spread throughout London, New York and Dublin. He is hunting for a variety of staffers with credit, portfolio finance, tax, accounting, legal and quantitative experience.
The fact that banks, investment banks and other financial institutions are looking for new ways to manage their risk positions, coupled with the desire by insurance companies to become risk-taking entities for structured credit products, is spurring the launch of these products, said Cooleen. Although this has been a change over the past year, he said it has taken that long for financial institutions to get comfortable with using insurance companies as derivatives counterparties.
Each of the double-trigger CDOs will be referenced to a portfolio of several billion dollars, according to Cooleen. Although the transactions are not the first of their kind, they are novel in that investors take on both the risk of the reference entity and counterparty risk, Cooleen explained. He added that these obligations could be either in derivatives or insurance form.UBS Warburg structured a similar transaction called Alpine last year. An official at UBS declined comment about Alpine.
In addition, Chubb is working on two synthetic collateralized fund obligations. It will be teaming up with investment banks on the deals, but Cooleen declined to elaborate. He said the underlying collateral could include hedge funds with a single strategy or with a fund of funds, but would not include private equity, because of his discomfort with the liquidity of the private equity market. The overriding factor in choosing collateral will be the asset manager's performance and the manager's ability to unwind positions if necessary. Cooleen said it was too early to disclose details of the timing, structure and pricing.
On the structured products front, Cooleen would like to see the amount of custom-tailored transactions grow as this is the most lucrative area. He added, so it can become a flow product for the firm afterward.
