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Derivatives

AXA To Take CDOs To The Masses

AXA Investment Managers is considering offering U.K. retail investors one of the first structured notes referenced to synthetic collateralized debt obligations by the middle of next year. Vincent de Martel, director in structured products and alternative investment management in London, said, "The biggest challenge is educating the retail client base about this asset class."

The asset manager plans to link the notes to a single tranche of a CDO and leave an investment bank to hedge the remainder of the structure, according to de Martel. The deal would likely be anywhere from GBP15 million (USD25 million) to several hundred million pounds. The asset manager has not decided which tranche it would reference, but de Martel said both the note and reference pool would be investment grade. AXA will manage the deal.

AXA is wrapping the CDO as a note to avoid having to get Financial Services Authority approval to sell such a structure to the retail market. Educating retail investors about CDOs and the risk inherent in this type of product could also prove challenging.

Despite all these problems, de Martel believes such a product would be a better way to generate income than an ordinary fixed income retail product.

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