What is a CDO Fund?
A CDO fund is a pooled investment vehicle which invests in a diversified group of debt assets. To finance its investments the pool vehicle issues bonds/notes to investors. The servicing and repayment of these notes is linked directly to the performance of the underlying assets. There are a number of types of CDOs and these can be categorised according to: 1. The assets they invest in; 2. The vehicle structure and management style. The Assets The underlying assets can differ but the majority of CDOs invest in one or a combination of the following: – Senior secured loans; – Mezzanine loans; – High yield bonds; – Investment grade loans – these are loans rated BBB- or Baa3 and above; – SMEs (small and medium sized enterprises), emerging markets, mortgage backed loans; and – Asset-backed securities, including securities issued by other CDOs. Depending on the underlying asset combination certain acronyms are often used: – CDOs “Collateralised Debt Obligations” – implying a combination of loa
