Washington Square Investment launches LSE-listed CDO fund

London-based Washington Square Investment has launched Carador plc, a London Stock Exchange-listed CDO equity fund.

Shares of the Irish domiciled fund managed commenced trading yesterday on the LSE under the Bloomberg ticker symbol CDO LN.

The launch of Carador raised EUR 50 million of gross equity proceeds by way of an institutional placing sponsored by Hoare Govett Limited, part of the ABN AMRO Group.

According to Washington Square, Carador is the first publicly traded closed-ended vehicle to offer investors a managed, diversified exposure to the CDO equity asset class. Liquidity, diversification, transparency, and an attractive income profile, were the principal drivers of the structure of the fund. Furthermore, the firm expects Carador is to have low correlation with traditional equity and alternative asset classes.

Carador's investment objective is to produce attractive and stable returns, with low volatility compared to equity markets, by investing in a diversified portfolio of equity and mezzanine tranches of CDOs. Washington Square anticipates Carador will be fully invested within 9 to 12 months, at which time it will target total returns for Shareholders in the range of 12 to 14 per cent per annum.

Carador will invest in a minimum of 20 separate cashflow CDO transactions, principally managed by third party managers with proven track records, and will seek to achieve diversification across asset class, geography, manager, and maturity profile, with maximum exposure to any single investment of 5% and any single manager of 15%. Each CDO investment is collateralised by a diverse pool of fixed income assets, which may include:

  • senior secured bank loans;
  • investment grade loans;
  • project finance debt;
  • asset-backed securities;
  • mortgage-backed securities; and/or
  • debt securities issued by other CDOs.

Carador's portfolio of CDO investments will be actively managed to minimise default risk and potential loss through comprehensive credit analysis performed by Washington Square's experienced credit research team and use of Washington Square's proprietary risk management systems, designed to quantify underlying asset correlation and CDO structural risk.

'We believe that Carador represents a ground breaking development in the market,' says Miguel Ramos, Managing Partner of Washington Square Investment Management, 'At last, investors are able to consider structured finance securities from an asset allocation perspective, taking advantage of the diversification, transparency and potential liquidity that Carador offers. We expect Carador to become the investment vehicle of choice for investors looking to benefit from attractive current returns and lack of correlation with other asset classes that the traditional CDO market offers.'

Background notes: Washington Square is an independent, credit focused asset manager, founded in February 2003 by former Morgan Stanley fixed income professionals. The group's ten investment professionals, collectively have over 100 years of experience in fixed income asset management, credit research, trading and structured products. Washington Square's main business lines are CDO product management and Credit Fund management.

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