Why doesn the investor simply invest in the assets directly?
If investors wanted to invest directly in loans, they would be faced with two main issues: access to the underlying assets and replicating the diversity of a CDO. The European loan market is predominantly a private market, so you can only invest if you are an active and recognised player. For the primary loan assets that Babson Capital Europe sources you have to be invited by the arranging bank to participate in the deal. The minimum transfer amounts for loans, which are set by the arranging banks, are usually in excess of €1 million which may hinder investors who wish to invest directly in loan assets. A single investment in a CDO provides an investor with a diversified portfolio, by borrower, industry and geography. If investors were to invest directly into the asset class they would not benefit from this diversification.
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