UBS Global Asset Management is building a collateralized debt obligation team to buy and manage transactions and has hired Sunil Dattani, head of investments at Gulf International Bank in Bahrain. Dattani, executive director and a well-known structured finance buy-sider, will spearhead the new effort from London and is joined by Duncan Larraz, director, who was also hired from GIB.
The new team will start by offering CDO funds to investors and plans to act as a collateral manager on its own CDOs. UBS' first CDO fund will be launched in the first quarter with an upper limit of E400 million, making it the largest such fund by far, according to Dattani. It will consist of CDO equity tranches sourced across asset classes and regions, in both the primary and secondary markets. "With our experience in loans, asset-backed securities--even funds of funds--we can go where the opportunity is and the risk is not," said Dattani.
The reason to start with a CDO equity fund is the risk-return profile is attractive to a broad spectrum of investors, from pension funds to high-net worth individuals, Dattani said. He added the best opportunities in new issue CDO equity are in CLOs, where spreads on double-B loans are currently under 250 basis points but likely to stabilize around 275bps.
Unlike some other CDO equity funds, the manager will not ally itself with any one particular investment bank. This is in contrast to CDO equity funds launched by David L. Babson & Co. and OppenheimerFunds at the end of last year, which were aligned with Citigroup and Merrill Lynch, respectively (BW, 12/1 & 12/8). "We have a large enough client base for that not to be necessary," said John Penicook, global head of fixed income at UBS GAM in Chicago, Dattani's new boss.
UBS GAM is leveraging its global investor base and investment opportunities worldwide, said Penicook, explaining why the firm hired a CDO team now. "The business case was there, but CDOs require a high degree of focus and we were fortunate to be able to have Sunil join our team. He has a lot of experience and a great track record investing in the asset class," said Penicook.
