Managers are at odds over the merits of collateralized debt obligations backed by similar outstanding paper. ING Bank has acted as collateral manager on two single-tranche CDO squareds and is looking to expand its program. "We started with a fairly limited structure and high-grade names in the portfolio, but are now doing research into more complex structures," says Serge Crevecoeur, credit portfolio manager at ING Bank in Brussels. He says CDO squareds add value "under certain circumstances."
Other Continental collateral managers are not so sure that CDO squareds offer value. "I don't see the CDO squared structure offering any advantages over a leveraged portfolio," says Erik van Leeuwen, head of CDO issuance at Robeco Asset Management in Rotterdam. He questions whether a repack of another repack can create an attractive investment. "If the value is not there in the underlying, then you cannot create it purely through structuring," he adds. Robeco, which has acted as collateral manager on six CDOs totaling E7 billion in principal, is staying away from structuring CDO squareds.
Chris Cloke-Browne, head of credit portfolio strategy at Dresdner Kleinwort Wasserstein in London, says he understands investor caution. He says CDO squareds "are a good investment, but only if you fully understand the structure and can evaluate your risks."