GLOBAL - Secured debt of hedge fund of funds will be the next hot sector to fuel growth in alternative investments, according to rating agency, Standard & Poor's (S&P).
The sector is a relatively new area of the global market value of collateralised debt obligations (CDOs).
According to Christopher Howley, a director at S&P’s structured finance ratings group, the US$500bn hedge fund industry is seeing the largest inflows of cash in history, triggering a high level of CDO inquiry.
Funds have attracted approximately US$86bn in 2001, a 100% increase over the previous year, and this growth is expected to continue over the next few years,” he said
“We've had significant levels of interest and already have a robust pipeline.
S&P has already started researching criteria to rate these transactions, which will be pubclished in Q2. The firm currently uses an approach similar to that used for market value CDOs, in which the rated debt is backed by the market value of eligible assets, discounted to reflect their volatility over a certain period.
The liquidity profile of a fund and its redemption features are, therefore, an important part of the analysis, said Howley.
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