An interesting Bloomberg article made me think about the CLO market. It seems that a lot of investors are throwing CLO’s, CDO’s and all other structured products together and are avoiding them alltogether. Complexity is not popular in times of panic.
Most investors that have these products on their books try to unload them at any price through any available venue with most markets being illiquid. But it looks like there is a small crowd that is cherry picking in this market, which is after all not completley dried up (I would guess in 2009 north of $100B in existing paper will be traded). As in any illiquid market, there are high transaction costs imposed by the existing market players (all over the counter). So some players are able to extract significant rents right now – and some investors might see a bright upside at the end of their trade.
I am living in Brooklyn, NY with my family and work on my new company Strateer. In addition I am commenting on the ordinary that floats by me every day.
Thinking about the CLO market
December 29, 2008 at 10:07 am · Filed under Commenting the news
An interesting Bloomberg article made me think about the CLO market. It seems that a lot of investors are throwing CLO’s, CDO’s and all other structured products together and are avoiding them alltogether. Complexity is not popular in times of panic.
Most investors that have these products on their books try to unload them at any price through any available venue with most markets being illiquid. But it looks like there is a small crowd that is cherry picking in this market, which is after all not completley dried up (I would guess in 2009 north of $100B in existing paper will be traded). As in any illiquid market, there are high transaction costs imposed by the existing market players (all over the counter). So some players are able to extract significant rents right now – and some investors might see a bright upside at the end of their trade.
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