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Cool heads rule in CDO land

While many who invested in the collateralized debt obligations market in the 1990s are bailing out after heavy losses, new players with a less emotional approach are enjoying some attractive gains.

Ron D'Vari is your typical investor in CDOs. Anyone who attended February's ABS West conference in Phoenix is probably thinking that means D'Vari hates CDOs, or collateralized debt obligations, to give them their rather more cumbersome full title.

But that would make him your typical former investor in CDOs. There are certainly plenty of those around, who have lost heavily on CDOs and given up on the market. D'Vari, on the other hand, is very active in the CDO market, both as an investor and, more recently, a manager of CDOs.

On the morning Euromoney spoke to D'Vari, who runs the CDO group for State Street Research and Management, he had been looking at seasoned cash tranches in the secondary market, as well as synthetic CDOs. The latter are particularly attractive. "We like synthetic, highly diversified deals run by seasoned managers. The financing of super triple-A tranches is very helpful. It's cheaper financing, which cash deals don't have. You can get 20bp to 30bp of additional reserves from cheaper liabilities. That could be worth half of any potential defaults. Two or three names could break a deal at the margin, so any additional advantage is very helpful."

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