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Derivatives

Nomura Preps CPPI To Single Levered ABS Fund

Nomura Securities is working on a series of constant proportion portfolio insurance notes that will wrap a highly levered asset-backed securities fund.

Nomura Securities is working on a series of constant proportion portfolio insurance notes that will wrap a highly levered asset-backed securities fund. CPPI has been deployed to funds of ABS funds, but this deal would mark the first to reference a single-manager fund.

The move underscores the Street race to apply CPPI to assets classes beyond the corporate market. That has most dealers aggressively pitching their ability to attach wrappers to existing asset-backed funds.

The identity of the underlying hedge fund could not be determined. Officials at Nomura declined comment and the size of the deal could not be determined. Traders said the manager will likely be an established manager with the ability to go long and short ABS across asset types, including commercial mortgage-backed securities.

The notes are expected to use a multiplier--the leverage factor--of between five and 15 but the number could reach 20. This will reflect investors' level of comfort with the underlying assets. The volatility for ABS funds is much lower than their corporate cousins, according to fund managers, and this allows for the extra leverage.

If successful, the notes will increase the fund's assets under management by bringing in less-confident investors through the capital-protected notes. The return on the notes should be in line with those of ABS hedge funds, according to an official familiar with the deal.

Nomura is marketing globally to both institutions and private clients. The maturity of the notes could not be determined but they are being offered either with coupons or without coupons but with gains on the investment paid out at maturity.

Dealers said firms such as BNP Paribas and ABN AMRO, which have sophisticated international client lists, are likely to be close on Nomura's heels. Calls to the firms were not returned by press time.

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