It's often the smaller deeds that prove most important in the long run, and that is what Goldman Sachs is hoping will be the case with a new data service it is launching.
The bank is making available all information about all the collateralized debt obligation (CDO) deals it has underwritten. It's that simple. All qualified investors interested in the market, as well as all underwriters, can access the information from a market data system called Intex that specializes in asset-backed securities. It is best known for disseminating data on asset-backed and commercial mortgage-backed deals, and has been moving into the CDO space in the past 18 months.
CDOs are among the least transparent of capital market products. For one thing, most are 144a-registered private-placement deals, so access to information is limited anyway. But the asset managers who run the portfolios and the investment bankers who help structure them are renowned for trying to keep as much information secret as possible. "Some see it as their own magic mix that they don't want revealed," quips one banker.
Alex Reyfman, one of the Goldman bankers who worked on the project, says: "If brokers wanted to bid in the secondary market on a deal which they hadn't underwritten, they'd practically have to reverse engineer it because of the lack of usable public information. And even then you're never sure you've got it right." To ring up the other underwriter was never an option. It wasn't forbidden but it was an unwritten rule that you'd never ask another underwriter for information or give it if asked.
That situation has become untenable. CDO issuance has increased in the past five years. Suok Noh at Goldman says more deals and more underwriters means that "investors own a portfolio of deals launched by different underwriters. They need better access to data than they currently have."
To be fair, each deal has a huge amount of explanatory paperwork accompanying it. To start with, there's the offering circular containing all the initial information. But it's a thick book, usually written in near-impenetrable legalese and is not the easiest thing to get hold of if you're not investing. Then there are the trustee reports written once a month. Incredibly, until last year these would usually only come in paper format, and be delivered by post. They've now managed to migrate them to the Adobe Acrobat pdf format.
But there's one problem: neither type of document can be easily downloaded into a computer system. It's a case of trawling through the reports by hand, which decreases their value.
It's a great way of stifling any kind of liquidity: neither investors nor underwriters hold enough pertinent information to make a decent market in a CDO. The trading process is telephone-based, slow, and open to gaming. Goldman's move could have a profound effect. "Putting all the deals on Intex is huge in terms of allowing some sort of secondary market to develop," says Eileen Murphy, global head of CDOs at Barclays Capital. Others have also expressed their support. "I sent them an email congratulating them," says Michael Barnes, managing director in UBS Warburg's principal finance unit.