The structured credit offering is being expanded in response to growing investor demand for products tailored to their risk and return requirements, said Pam Burgess, head of the institutional group. Pension funds, for example, need to respond to an increased emphasis on capital requirements and scrutiny of the risks that they are taking to get required returns, she said. Burgess added that demand for tailored structured investments has snowballed during the past few years.
A portfolio of leveraged loans with a duration overlay is one example of the kind of non-CDO structured product the new group will be developing, said Burgess. For example, an investor might wish to extend the duration of a leveraged loan portfolio with a five-year average maturity to 10 years. It could do this by selling two-year interest rate swaps and buying 10-year swaps, thereby artificially extending the duration. The structured product M&G would offer would include both the leveraged loans and derivatives.
Separately, Prudential M&G has hired Mike Nicholson, director in the CDO team at Standard & Poors in London, to structure and manage portfolios for the CDO team headed by Kent Kershaw.
Prudential M&G, which is unrelated to The Prudential Corporation in the U.S., runs £55.4 billion of fixed income assets in Europe and the U.K.