Just before Christmas the chief executive of a major European investment bank told me that constant proportion debt obligations (CPDOs) would be the talk of December 2006 and then everyone would forget they ever existed. How wrong he was.
CPDOs received a lot of attention in the press at the end of last year, partly because they let investors take credit exposure via credit derivatives at up to 15 times leverage. "The ones who had the idea say it was a bright idea, and the ones who did not have it are trying to destroy the project," said one structured credit player at the same Christmas party. Now, it seems, other banks are getting on on the act, following ABN Amro's successful CPDO offering, dubbed Surf.
SG CIB is one such bank. It hopes its first CPDO, Stelaris, will launch by month end. But as more and more CPDOs hit the institutional market, the question structurers are no doubt asking is whether the products will also sell at the high-net-worth level, or even the retail level.
In the February issue of Structured Products magazine we profile Signina Capital - a Swiss wealth manager. The firm says it is already exploring offering its HNW clients CPDOs and other wealth managers have told me they are also considering getting in on the act.
The questions remain though: are these investments suitable for the individual? Will other banks also start to market CPDO offerings?
And finally, was the man in the know at the Christmas party just jealous, or did he have a point? Email me your comments...