Great Eastern launches S$100m CDO fund

Great Eastern Holdings has launched a $100 million fund that will invest primarily in new collateralised debt obligation (CDO). CDOs are securities backed by assets such as bonds and loans. They are similar to collateralised mortgage obligation (CMO) or collateralised bond obligation (CBO), except that they represent different types of debt and credit risk. In the case of CDOs, these different types of debt are often referred to as ‘tranches’ or ‘slices’. Each slice has a different maturity and risk associated with it. The higher the risk, the more the CDO pays. CDOs gain exposure to the credit of a portfolio of fixed income assets and divide the credit risk among different tranches : senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). More recently, CDOs have come under the spotlight following the subprime crisis, however, Great Eastern assured during the launch that the fund will not have any direct exposure to sub-prime mortgage securities. The CDOs it is investing in are expected to have AA ratings by Standard & Poor’s. The company asserts that CDOs are a sound investment instrument if properly structured to achieve the desired returns and risk profile.