Société Générale is looking at offering the first collateralized fund obligation referenced to a portfolio of weather and catastrophe risk hedge funds. Diego Wauters, executive director and global head of insurance and weather derivatives in London, said, "This is just in the thinking process." He estimated that if the CFO goes ahead it will likely hit the market within the next 12 months.
The firm is looking at the product now because the weather market and investors are getting more sophisticated. However, Wauters said there are still several factors to work out before it goes ahead with the transaction, such as whether the risks are suitable for a CFO and the size of the market. It will have to speak to rating agencies and work out the return and pricing of tranches. The weather derivatives market is also still in its infancy and Wauters is examining whether there are enough investment opportunities before expanding the size of the funds.
SG's weather and CAT risk funds have a three-year track record and a total of USD450 million in assets.