Invesco
The UK firm is a pioneer in its field, as its Tenzing CFO deal proved
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Tenzing CFO Deal structure |
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The collateralized debt obligation (CDO) market continues to be the centre of attention in the financial markets. In May, though, this was for all the wrong reasons, as the focus was on a technical dislocation in correlation models. Breathtaking change in the scale and scope of assets used as collateral and structuring complexity have combined to create an area where the yields, fees and risks are perceived to be high compared with many other fixed-income asset classes. However, it is widely perceived that improvements in modelling technology and choice of underlying assets have brought greater comfort to the buy side.
Consequently, CDOs are no longer the preserve of specialists. Lured by enhanced yield, a range of new investors have jumped on the bandwagon and it is now part of the fixed-income mainstream.
It is in this context that Invesco has played an important role in providing investors with a template for buying CDOs, working closely with portfolio managers and investment banks to create financial engineering solutions and continuing support for investors.
Invesco has managed CDOs since 1990 and is a pioneer in this field. It manages $8.7 billion of assets in 19 CDOs. These consist of 11 collateralized loan obligations, three mezzanine asset-backed securities (ABS) CDOs, three investment-grade credit swap options, one high-yield bond CDO and private equity. “The quality of their business is extremely strong across a broad range of asset classes,” says Fritz Thomas, head of CDOs at Deutsche Bank.
In the past 12 months the manager has been notable for its activity in the investment grade market, CDOs of ABS. It has executed leveraged loan CLOs in both the European and the US markets, showing an ability to print at historical tights. Furthermore, it has also managed to print a trade using private equity – one of the more difficult asset classes to manage.
Invesco has introduced a system for creating and managing CDOs that is notable for ensuring a high quality of business across a wide range of asset classes. It has used its experience to its own and its investors’ advantage in all the key flow sectors as well as some of the more esoteric ones. Techniques and knowledge built within one class can be used fruitfully in other areas. Although it utilizes a range of specialized investment managers across its business, Invesco has a system of central control that it uses to ensure quality. Since 1999, it has provided timely, usable portfolio information to investors on a regular basis over the internet. Client reporting and communication is characterized by a complete quarterly update with commentary and a monthly profile of the assets under management.
“They have the type of model that most managers should probably gravitate to – multi asset class under a single platform,” says Oldrich Masek, head of CDOs at JPMorgan.
In this area, versatility is a strength. Expertise across asset classes enables the manager to bide its time and execute when the time and prices are right. “We are not tied to any one asset class,” says Kevin Petrovcik, a managing director at Investec. He reveals that the manager pulled out of a warehouse for an ABS transaction early in 2005 because prices in the asset class where sub-optimal.
“We have taken CDO technology across the whole range of financial market assets – loans, ABS and even to private equity collateral,” says Petrovcik.
Tenzing CFO offered investors a rare opportunity to gain exposure to private-equity collateral. Managed collateralized fund obligations enable investors that do not traditionally turn to private equity to get involved in a sector that has generated excellent returns over the past 20 years – except for a period following the bursting of the technology bubble – and yet via a transparent vehicle providing non-recourse capital markets leverage.
Further evidence of Invesco’s standing is provided by the fact that it was brought in to take over management of the $250 million Katonah V following the uncertainty that emerged from management departures at former manager Kohlberg in January.
