Cairn Mulls Buying Into Synthetic ABS CDOs

Cairn Capital, a London-based asset manager with USD14 billion under management, is considering investing in collateralized debt obligations referenced to synthetic asset-backed securities.

  • 22 Jul 2005
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Cairn Capital, a London-based asset manager with USD14 billion under management, is considering investing in collateralized debt obligations referenced to synthetic asset-backed securities. "We have looked at them from the buy side," said David Littlewood, director at Cairn Capital in London. "It's too soon to put a time frame on it, but we are definitely interested in the structure."

Littlewood said synthetic CDOs referenced to high grade ABS, namely A to AAA assets, would be most attractive. "They are interesting because the deals can be brought to the market very quickly and you don't have to chase collateral for the ramp up," he said, adding there were no foreseeable market factors that would halt plans to go ahead with a transaction. Cairn is not yet investigating synthetic CDOs of ABS from a management perspective because of the complexity of substituting the CDS of underperforming assets, Littlewood explained. "To actually take an effective methodology of changing [assets] is not pure and simple," he said.

Cairn has counterparty relationships with Barclays Capital, Credit Suisse First Boston and UBS, but Littlewood did not rule out looking to other houses for the deals. The group has launched a number of public synthetic CDOs since opening last year, most recently a long-short index-based transaction which is principal protected by constant proportion portfolio insurance. The ten-year deal was structured by CSFB.

  • 22 Jul 2005

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