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Introduction to Securitization by VINOD KOTHARI, FRANK J. FABOZZI

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THE CDO MANAGER

The crucial agent in an arbitrage CDO is the manager of the portfolio of the CDO. The CDO manager may or may not be one of the equity investors in the CDO. Typically CDO managers are investment advisers and asset managers seeking to expand the amount of assets under their management. Their motivation is to increase their fee income, while having a negligible impact on the costs of their organization.

Qualities of the CDO Manager

Rating agencies look at experience, staffing, and financial and managerial resources of CDO managers when rating a CDO issue. The size of an organization has obviously been an important factor. Below are other important manager attributes that are considered by rating agencies.

Experience

CDO management requires skills that are unique. These skills are relative to the type of assets that the CDO would acquire. For instance, a CDO that would focus on high-yield corporate bonds would need a manager experienced in this asset class, and CDOs that focus on CMBS or REITs would require conversance with that market. However, as compared to generalized asset management, for instance, such as for mutual funds, managing a CDO portfolio has its own pulls and pressures. First, there are stringent rules imposed by rating agencies on portfolio composition. Moreover, there are asset-based triggers applicable. At the same time, in view of its liability structure, a CDO manager has to strike a balance between the needs of the equity investors (high ...

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