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This
Investment Could Turn Ugly
The
Street wants to get small investors into exotic pools
called CDOs. It's a risky game.
Business
Week Issue Date: June 18, 2007
By David Henry, with Matthew
Goldstein in New York
After spending two years devising
the right formula, big firms are now targeting individuals, and
the mutual fund managers who cater to them, with the investment du
jour: collateralized debt obligations (CDOs).
To
avoid restrictive rules governing investments for individuals,
managers have tweaked the investments. KKR Financial
Holdings, Everquest, and Highland have
been changing the legal contracts that govern the majority of their CDOs to
bar the managers from trading the underlying assets
for profits, a strategy that
has boosted CDO returns. The three companies warn in their filings that this
restriction puts them at a potential disadvantage to most CDOs.
Such investments are also ripe
for abuse, since there's little transparency in the underlying
holdings. "We've seen several examples in the past where
managers succumb to temptation and inflate prices to increase
their fees," says Janet Tavakoli, a
consultant to institutional investors and president of Tavakoli
Structured Finance Inc. "These products are not
appropriate for retail investors."
END
OF EXCERPT
Janet
Tavakoli is
the president
of Tavakoli
Structured
Finance,
a Chicago-based
firm
that provides
consulting
to financial
institutions
and institutional
investors.
Ms. Tavakoli
has more
than
20 years
of experience
in senior
investment
banking
positions,
trading,
structuring
and marketing
structured
financial products.
She is
a former
adjunct
professor
of derivatives
at the
University
of Chicago's
Graduate
School
of Business.
She is
the author
of: Credit
Derivatives & Synthetic
Structures (John
Wiley & Sons,
1998,
2001), Structured
Finance & Collateralized
Debt
Obligations (John
Wiley & Sons,
2008).
Janet
Tavakoli's book on the global
financial meltdown
is Dear
Mr. Buffett: What An Investor
Learns 1,269 Miles From
Wall Street (Wiley
2009)
Clients
of Tavakoli Structured Finance
have the benefit of proprietary consultation, which is
not available in any other paid or public forum. Clients
also commission proprietary research and analysis.
TSF
makes some information available to the general public. Please
click here for other articles.
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