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CDOs: Old hands face up the shock of the new

The rapid influx of new managers to the CDO market is a staffing headache for established players.

Existing CDO managers are struggling to retain key talent as new firms enter the market. Speaking at the American Securitization Forum conference in Las Vegas in February, Pat Maley, director of asset-backed securities at Deerfield Capital Management, said that this was one of his biggest challenges. “We constantly worry about losing our staff and, because of that, we are constantly on the lookout for new people,” he said.

The number of new managers, and the rapid increase in deal volume, is also making experienced managers frustrated that there is little distinction in pricing between deals done by new entrants and those done by firms with a proven track record. “Our hope is that down the road there will be more tiering. When collateral and CDO managers have been performing well, they should be rewarded when they come back to the market,” Ed O’Hara, senior portfolio manager at Vanderbilt Capital Advisors, told the conference.

The loss of talent at established CDO managers is also putting pressure on ratings. Kevin Kendra, senior director in credit products, who manages performance analytics at Fitch Ratings, says that the normal impact of a change of personnel is short lived. “From a practical stand point, what generally happens is that manager activity of CDO administration slows down during these transition phases, effectively making the deals static transactions on a temporary basis,” he says.

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