Pacific Asset Management, with over USD65 million in assets in Singapore, is looking to manage its first synthetic collateralized debt obligation. "Banks are keen to do this deal--the only trick is to get rid of the equity tranche," said Desmond Soon, investment manager in the Lion City. He predicted the CDO would up to USD500 million.
Pacific Asset Management is canvassing potential investors in Asia that would be interested in purchasing the equity tranche, which could be up to USD50 million. Soon noted that the portfolio will likely be based on global credits rather than just Asian names to ensure adequate liquidity as there are not enough liquid Asian credit-default swaps to create a diverse basket. It is looking at this now because of the increasing liquidity of credit-default swaps and the widening investor base for CDOs.
The synthetic CDO will likely have a maturity of five years and contain three or four tranches, possibly consisting of super senior, AAA, B and the equity component. "We'll have no problem placing the rated portions," added Soon. He continued that as synthetic CDOs are a relatively new product in Asia, it may take some time to find an investor that is interested in the equity tranche.
Soon noted that the fund is currently speaking to a number of major banks about the deal, declining to name them. He added that the banks will aid in the structuring and placement of the deal. Pacific Asset Management's prime broker is Deutsche Bank.