Structured Credit debate: Complexity and beyond

Structured Credit debate participants

AC, Euromoney Hubert, could you start us off with an overview of the market?

HLL, SG CIB The market is much more active in 2006 than it was last year. On the investor side, there is more volume with hedge funds and more activity with middle market investors and the private banking sector. And we’ve seen interesting developments in specific geographical areas. For example, the middle market in Australia has expanded dramatically, as well as being a strong retail market. And in the US we now have investors interested in synthetic – derivative – business, who were not ready for synthetic CDOs a year ago.

On the product side, there are new forms of leverage. A lot of leveraged senior was done in 2005, and in 2006 we have seen the development of zero coupon equity pieces. On the CPPI front, we’re also developing leverage based on value at risk (VAR). Lastly, in terms of asset class, we’ve seen more and more synthetic CDOs of ABS.

AB, Deutsche Just on the subject of leveraged super-senior – there is not much market at the moment as spreads have tightened so much. Additionally there is uncertainty over correlations at very high attachment points in bespoke deals, especially when the average spread is much wider than the index. People are comfortable with risk, but only up to a point.

JL, Solent When the correlation market crashed, the super-senior got cheaper, because there are not normally many natural players in it – just a few monolines and a few banks. So a few banks, Citi and Deutsche and a couple of others, packaged super senior together and leveraged it, between seven and ten times, creating a triple-A asset with very low default risk and a reasonable return. Some trades had spread triggers in and some didn’t. That trade was incredibly rich in July last year. By about October it had been all but exhausted. Investors had to act quickly to get in and that has become a characteristic of the market as a whole.

DP, Cheyne Capital It will be interesting to see if that market will return as spreads widen. I suspect there will be heightened focus on market-to-market triggers and margin calls on such positions with widening spread momentum rather than tightening. I do worry about the sort of leverage and mark-to-market triggers that have been employed on huge notional positions in vehicles with relatively poor access to liquidity.

JC, Fitch Well, yes, we’ve seen leveraged super-senior on corporates dry up to some extent. But what about on ABS?

AB, Deutsche It’s the same story. The market has tightened so much that it’s difficult to create and repackage anything. That said, even when the underlying spread is one basis point (bp), people are still happy to get five bps through leverage, providing they are not bearish on the market. Now people want returns of, say, 100 bps on a leveraged basis, and the market’s only offering 55, and most of them wait for a better opportunity when the spread widens. If the market continues to be very tight, people will re-strike their entry levels; otherwise they’ll wait for spreads to be 10 to 15 bps wider in general, and then they’ll go back to super-senior trades.

DL, Cairn There are certainly lots of investors waiting for the ability to print them. Investors did very well out of them in 2005 but we are worried by the negative gamma in the market that can arise because investors all tend to invest at the same time with similar portfolios. These products have spread or loss triggers and when investors start to lose money they all lose money together. We worry that these transactions can become unstable from a ratings perspective and from a de-leveraging perspective. Leveraged super-senior has its own specific risks and is a complex product for banks to manage. It is not the simple, risk-free product it is often marketed as. At Cairn, we did a managed leveraged super-senior product, taking the view that, with the negative gamma in the market, having a manager would make a real difference in preventing de-leverage. When the markets are stable it is also a nice environment to manage credit within to generate alpha for our investors.

AB, Deutsche It’s ironic to see how good the loss trigger trades have been for clients when we’ve seen that some dealers mispriced this option and executed at levels that were comparable to the spread trigger. This mispricing cleaned the market of some small players that were getting ahead of themselves.

JL, Solent Clearly the whole growth of synthetics in ABS has been another thing, although it’s been much more based in the US than Europe. That’s grown with a focus on the cash CDO market.

LF, Calyon Talking of other new trends, synthetics are going global. Before, just a few institutional investors across continental Europe plus Asia ex-Japan were interested, and that was it. Now, as Hubert says, the Australasia region can absorb very large ticket deals and A$300 million is the benchmark. Another new development in 2006 is the sale of managed synthetics into the US.

DL, Cairn The other trend is that, with investors now willing and able to participate in each level of the capital structure – in equity, mezzanine (mezz) and super senior – when an arbitrage appears in the synthetic market it doesn’t persist very long. As a consequence, banks are doing smaller and quicker deals. Gone are the days of big, global deals like Aria. Right now the market wouldn’t support a deal like that, but even if the arbitrage were there, by the time the deal had been structured and marketed, there would be a very real risk that the arbitrage would be gone.

DP, Cheyne Capital Yes, it has become a much faster moving market. So as a manager, it’s important to have the trading platform and risk systems in place to risk manage spread and correlation positions with satisfactory speed.

LF, Calyon To some extent, we can say that synthetics have now become similar to the cash side, in that very active correlation houses are now warehousing risk – in this case risk-positioning the pre-hedge by selling credit default swaps (CDS) on the portfolio before the trade actually closes, and then rolling out the type of risk investors want.

MS, Wharton We’re seeing a lot more of that. As long as the manager is willing to underwrite the equity, then the bank will step up, and you can go out to market very quickly.

LF, Calyon The bank will be limited by the type of market risk it can take, given the deltas in those global managed synthetics. People only want to get engaged in global public deals if they can get more than $300 million to $500 million away. For that size you need significant market risk commitment from the correlation desk. That is why very few top-notch investment banks are active in managed synthetic products. Calyon was the second most active bank in that field in 2005.

AB, Deutsche The big difference I see between the markets in 2005 and 2006 is who has the capacity to source attractive assets and then manage the risks. For example, few people can effectively source leveraged loans and then manage the position, because in practice you don’t place the whole capital structure, you have an open correlation position and you are short the pre-payment option.

MS, Wharton And with the synthetic, once you’ve taken the equity and the bank is willing to underwrite the piece above or is providing you with a facility, you can go to market and execute within three or four weeks. But the cash market will take much longer, and that’s why spreads are disappearing. In mezz, why were spreads wider in December? Because of hedge funds. Why are they tighter now? The CDOs are trying to take advantage of the arbitrage, but the hedge funds are playing a much more significant part than ever before.

COC, Fortis In general though the market is getting more complex as managers start to do more bespoke, reverse enquiry trades.

MS, Wharton Yes, there’s a fine line between managers and hedge funds because now the typical CDO manager is also managing a hedge fund.

LF, Calyon Exactly. They realized that they were implicitly being “forced” by rating agencies and the arranger to buy a bit of everything in the market, and that wasn’t prudent. So now they are moving to hedge fund structures that put fewer constraints on their alpha generation capacity because they can buy what they really think presents the best relative value irrespective of forced diversification.

DP, Cheyne Capital Having said that, CDO-style instruments have adapted to such concerns. Particularly with the advent of single-tranche equity pieces, the investor can often be assured that the portfolio is being managed to their economic interests only (since there are no rated mezz buyers). The more sophisticated dealers now offer CDO platforms with very few limitations with respect to ratings, spread and diversity: any portfolio has a price to finance and any substitution has an associated present value (PV) effect on the financing. If you want to employ higher leverage, there is still a lot to be said for the non-recourse nature of CDOs, rather than the recourse leverage of hedge funds.

More leverage?

AC, Euromoney We seem to be at a point of increasing leverage in these structures. Can leverage increase any more?

AB, Deutsche If people want to capture the benefits of tighter spreads moving in tight ranges, they need to leverage. There are many ways to do this, so it’s not restrictive.

JC, Fitch Do you think investors understand the impact and market risk volatility implications of increasing leverage?

HLL, SG CIB People are leveraging where they want to leverage. Just talking about credit, you can leverage either on default or on spreads or on correlation. The leverage is more fine-tuned now in that arrangers talk to investors about these different components – default, spread and correlation – and then design something of interest to their investors. Communication between investors and dealers is now more about the type of risk customers are willing to take, for example default risk rather than spread risk when spreads are so low.

COC, Fortis The word ‘leverage’ is a bit blunt. You go down the capital structure, and thereby your leverage increases, but are you in-the-money or out-of-the-money leverage? What’s the risk you’re taking? Are investors taking more leverage and putting the risk further away from them? Is that better than taking out-of-the-money risk at a lower leverage level?

LF, Calyon One of the consequences of last year is that now every investor is fully aware of a CDO tranche’s sensitivity to underlying spreads and correlation. It’s no longer true that people are solely focused on spread sensitivity – saying, “if the weighted average spread of the portfolio moves by X bp, then my tranche’s discount margin will move by Y bp, where Y equals X times the tranche leverage”. Now, investors require clear answers in terms of correlation sensitivity before they enter the trade. That’s the first point.

Another change is the fact that you won’t be a good synthetic CDO manager if you only manage credit. You need the ability to manage within a capital structure made up of various single tranches, and the ability to create subordination. And a third point is that, in terms of risk management, for arrangers, the rebalancing necessity has become more acute. So when you do a large global managed synthetic programme, you issue the middle of the capital structure – the mezzanine tranches – and that creates new opportunities. You usually rebalance your correlation exposure with hedge funds, and super-senior players. You need both. Since mid-last year every active bank in correlation started to focus on hedge funds and traded massively with them. If you do this well, you end up having done too much rebalancing with hedge funds and then you create new opportunities again for end-investors in the middle of the capital structure.

COC, Fortis Do you really think the weight of investors is in the middle?

LF, Calyon Yes, in terms of number, but not in terms of amount. You can do several billion a year of mezz trades, but just looking at it in terms of percentage, it will always be, what – 10% of the capital structure? You’re going to have maybe 5% below and another 85% on top. So you want to assume you have no volume mismatch in your book. You’ll always do much more in super senior.

COC, Fortis But even risk-adjusted, do you think there’s a smooth continuity across the investor market, or are a lot of investors floored at some level in terms of rating? There’s still a disconnect between the rated and the non-rated markets. The middle market is rated and dated.

LF, Calyon We are in the middle and we experience convergence of the rated and the unrated markets on a daily basis.

MS, Wharton The unrated is the big thing. The rated could disappear spread-wise, and if investors are not looking at the unrated, then it’s going to be a rude awakening.

HLL, SG CIB Do you think it’s going to disappear?

MS, Wharton When did you last do a pure cash European ABS CDO?

DL, Cairn I believe that the last true arbitrage Euro ABS CDO was Rhodium. That was done in early 2004 by Solent.

LF, Calyon We did one in December: it was a mezzanine European ABS deal called Zoo 2 managed by P&G.

MS, Wharton You couldn’t do that today with the current spreads. What’s going to make this market disappear? Look at where spreads are in Europe today.

HLL, SG CIB But you still have the classic German bank investor looking for rated investments, even at lower spreads, so we’re still doing the classical single tranche synthetic CDOs business.

COC, Fortis But what happens next? Increasing the leverage drops your rating at some point.

MS, Wharton And at some point it will drop the investor as well. I’m not saying the market will close. But it doesn’t pay to try and do a European ABS CDO with spreads where they are and with equity returns where they are. The economics do not work at present.

DL, Cairn As a result there are lots of alternatives. The liability side is not going to re-price until you run out of options across the board.

MS, Wharton But that’s the point. People should start looking away from the traditional structures which do not work today.

AB, Deutsche A transition could be to have rated principal-only notes with boosters on the coupons.

LF, Calyon There’s a frontier between new players and more established asset managers who submit business plans that take six months, by which time the market has changed. What we call the new, fast money – I don’t like the term hedge fund – can change strategy or allocation much faster.

New structures needed

MS, Wharton Right now we see opportunities in the unrated market and the loan market. How do you explain why mezz loans traded at such a wide spread versus rated double-B? The key point is that what we were all doing last year does not work this year. So we need new products and strategies.

AC, Euromoney What about constant proportion portfolio insurance (CPPI) structures?

DL, Cairn The CPPI market has been very interesting. I think people have underestimated how deep the CPPI investor market is, but investors still need education. It's a big jump for a mezz investor to go from buying a mezz CSO to buying a long equity/short mezz credit CPPI trade. Understanding the correlation risk, spread risk, mark-to-market risk and the technical aspects is difficult for investors, particularly on the basis that they then have to present the structures to their own investment committees.

DP, Cheyne Capital I agree it’s a more complex product, hence potentially more rewarding. Ultimately investors may be sold on the track record of an open fund over a number of months, even if they are cautious of the initial hype.

COC, Fortis Ultimately the deals have a maturity date and a rating, and those are the two big hurdles to get over. So investors are buying them under the same mandate that had them buying double-A mezz CDOs. CPPI fits the regulatory mandate and the accounting mandate.

DL, Cairn Yes, though the pool of investors who buy CPPI in Europe is smaller than the pool who buy synthetic CDOs.

COC, Fortis But it’s not as small as you would’ve thought. And it’s far more professional. Initially everybody said this was a retail product. We have had success in private banking, but a lot of professional accounts are buying this, because of the favourable capital treatment of the notes.

DP, Cheyne Capital Yes. In addition the leverage that some of the structures can deliver means that returns are enhanced rather than denuded by the principal protection. Hence the principal protection instrument has grown up beyond a somewhat gimmicky retail product.

JL, Solent The growth of CPPI has been the biggest innovation in the synthetic business this year. Given the volatility of the correlation market it’s hard to get a public deal done, but we are seeing €100 to €200 million CPPI deals taking their place. It’s not the old CPPI wrapping a fund, but specific synthetic deals used as a way of moving correlation. The banks have worked out that CPPI as a technology can be used either to wrap funds, as it was historically, or to wrap single strategy or simple multi-strategy funds. And it’s been a way to get people comfortable with equity risk. CPPI gives you exposure either absolutely to equity or indirectly in some form of long equities, short mezzanine structure. The CPPI wrapper allows the investor to get a rated investment, albeit with some contingent coupon, and allows the investor to say, “even though I have some exposure to first loss, that exposure is mitigated by the CPPI protection and by the manager’s activity”. But I don’t think CPPI is a startling innovation. Banks have a certain amount of gap risk in these assets and they trade that gap risk through their correlation books. So if they can, in simple terms, buy protection on the equity – get second order protection on the equity gap risk – then that’s better than holding it on their books. The business has grown because of that.

DL, Cairn Have you seen any evidence of CPPI being distributed into the US market?

LF, Calyon I think the big difference between CPPI and CDOs or classic debt product is stated coupon versus total return. It’s easier for US investors to believe in total return when it comes to very specific, slightly leveraged real money managers’ products, but CPPI has so far been politically unsuccessful in the US. This situation is changing because US investors do also realize that structured credit CPPI is a very powerful product in terms of creating controllable leverage on diversified portfolios of credits.

AB, Deutsche I think CPPI has been introduced to allow people to invest in a manager or a hedge fund with the cosmetic effect of, let’s say, potentially switching to the zero at anytime and having their capital protected. In the States, where investing in a hedge fund is more natural to investors, people may be at less notional risk with any particular hedge fund; they know the manager and they are comfortable with that. CPPI is a mixed product for people who cannot or do not want to be at 100% risk and where the investment in the fund comes as a booster over a principal protected. These products will succeed because spreads are very tight and people want to invest in a manager’s capacity to generate beta with long and short positions, and express relative value strategies more effectively than in a synthetic deal where the manager only selects and substitutes names in most cases.

HLL, SG CIB We’ve been working on a CPPI where we provide the leverage in the fund and the manager can implement different strategies, from spread to correlation to default, and take a view in a more sophisticated way. It’s a new way to leverage and an opportunity for the managers to add value.

DP, Cheyne Capital And adding that value through the development of synthetic principal-protected products has gone hand-in-hand with banks offering a much more integrated trading platform. This allows us to trade the risks that Hubert mentions much more efficiently, which has to be good for returns. The difference in the standards of trading platforms between different banks is stark at the moment – there are some clear winners and losers in what is essentially a new and quite high octane prime brokerage market right now.

COC, Fortis CPPI includes everything from black box trades, VAR-based CPPI, right down to almost rule-based trades and much more defined strategies, so there are many different options there. The structured credit investor is used to seeing a fairly specific strategy and what its constraints are. It will be interesting to see how they deal with these broader strategies.

Rating the unrateable

AC, Euromoney What is happening in the unrated market?

LF, Calyon I think our collective view is that the unrated part of the market will continue to grow, which means that the rating agencies have to follow it for investors.

AB, Deutsche It would be very helpful if we could get some kind of, let’s say, criteria of differentiation in the unrated world. Of course no-one wants to put pressure on rating agencies, but it is difficult for investors to distinguish between more or less risky assets in the unrated world.

JC, Fitch The rated part of the market is starting to encompass more products, such as CPPI and spread or market value-based credit products. One of the limiting factors in rating new types of products is often the quality of the data.

HLL, SG CIB The data is the issue. You need a few years’ history, and there isn’t that much data on index tranche correlation.

JC, Fitch Exactly. It’s difficult for us to rate market-value triggers linked to index tranches because correlation, rather than just credit, can change the value. We can rate the loss and spread triggers in leveraged super-senior CDOs, because there is ample data on the performance of credit spreads.

DP, Cheyne Capital I think obsessions with rating can be a bit dangerous and arguably Basle II doesn’t help that situation. The rating of a volatile product on day one may not stay the same very long! Besides, there are plenty of unrated credit buyers out there – just look at the investors in credit hedge funds for a start.

Hybrid products

AC, Euromoney What about multi-market strategies?

AB, Deutsche Investors don’t buy multi-asset products because of the way they – the investors – are organized. Even private banks tend to be segmented into people buying rates on one side and people buying credit on the other. Having said that, I’ve seen several multi-asset strategies. First are the simple “boosters”, where the primary product is a first-to-default credit play, but boosted by an interest rate component, like a range accrual or constant maturity swap (CMS) play. The second – real hybrids – are products where people effectively price the correlation between two markets and price the quanto risk. I have seen some products like that, but very few. It seems to be more what you might call ‘fake hybrids’. These opportunities arise when people want to cover a position they have in one market, let’s say commodity, with gains somewhere else, for example via an interest rate/credit exposure. In that case they don’t price any quanto. Investors have a scenario in mind, like oil drops 10% and interest rates/credit goes to a certain level and they want to be neutral, P&L wise.

On the liability side, the most common thing I’ve seen is the perfect asset swap technology, where a swap extinguishes when collateral pre-pays off defaults on CLO and ABS cash structures.

But there are other hybrid risks that sit on dealers’ books – all second order contingent risks. For instance, when a dealer executes a CDO in one currency, the underlyings are in a minimum of two currencies – euros and dollars – and that creates an FX/credit contingent position. So expect the banks to repackage these risks and offer them at attractive levels to hedge funds. That is how the hybrid market should develop, rather than creating complex new assets which are too difficult to price and hedge.

LF, Calyon Yes, so for example, a bank on the other side of an oil hedge with an oil company has counterparty risk that depends on the oil price – the credit risk is contingent on commodity prices. That can be repackaged. Calyon is quite active on that front. Also we have launched a new CDO recently, called Alchemy, that mixed commodity trigger options with a credit portfolio as underlying collateral. It was a great success, reaching new types of CDO investors.

AB, Deutsche Back in 2003, interest rate and commodity desks had exposures to utility companies through derivatives, and they wanted to monetize the PV of their swap. The problem was that the counterparty was not a liquid name in the CDS market. So it was very expensive and almost impossible to monetize the swaps. Everybody would have loved it, but the market did not offer the possibility of hedging the exposure. Now, because more people have access to both commodity and credit markets, and also because spreads are much tighter, there will be more opportunities to hedge counterparty exposures.

AB, Deutsche On the liability side, corporates have yet to benefit from the hybrid solutions we can create to access better financing on portfolios of receivables, for instance. The financing rate could be dependent on the level of their stock, for example. And corporate take-up of credit derivative technology is not widespread yet.

HLL, SG CIB All of this will grow. The complex risks created by the banks are of increasing interest to investors and this is part of asset-class expansion. You could say in fact that these risks are not hybrid, they are actually a new asset class sourced by the bank and made available to investors. Our leveraged loan transaction is an obvious example, but it could be export finance, project finance and so on.

DP, Cheyne Capital It’s all very well bankers creating more complex and, dare I say, more profitable instruments. But as a manager we need to see liquidity before we buy. As long as banks devote as much energy and capital to providing liquidity as they do inventing the product, then that’s just fine.

LF, Calyon Talking about new asset classes being driven off more exotic risks, I think the next step will be products based on recovery. We now have market fixings every month for correlation data, and there is also daily liquidity in the tranched indices, which creates daily data for correlation. Other asset classes such ABS indices don’t have that yet, but that’s the next step. So you can mark your spreads, you can mark your correlation, so then technically you have your theoretical credit position on a daily basis. You have your correlation sensitivities and your second order risk. You can hedge your FX, which is usually the largest contingency in the correlation books. Everything looks fine, so you move on to the next step, and that’s recovery. The next big thing will be not only recovery-upon-default exposure, but the recovery levels at which banks and implicitly the investor products are present-valued (you need an assumption of recovery to price synthetic products).

Choosing a manager

AC, Euromoney Managers are clearly doing much more than simply trading credit. What additional skills should investors look for in their manager?

COC, Fortis Well, as we’ve discussed, managing fundamental credit positions creates a whole range of other issues – correlation risk, gap risk, contingent quanto risks, delta calculation, delta resolution and so on....

DL, Cairn ......yes and that has resulted in managers having to build infrastructure very similar to that of the banks and it has to keep pace with that. No matter how good you might be at managing credit, if you can't manage the risk within these structures and keep pace with the banks, forget it.

HLL, SG CIB So natural selection will mean that only a few players will decide to invest in this field. On our side it’s a big commitment and it’s under ongoing development.

DL, Cairn And that is what investors expect. If you are doing a good job, not only should you be generating alpha for investors but investors should also be getting a benefit from the investment you have made in your infrastructure. You earn fees because you create value and part of that value is that investors are not having to build the same infrastructure themselves. The asset managers who are capable of structuring transactions, managing credit and managing the risk of complex credit products will be the winners. Traditional long-only managers without these skills will be the losers.

HLL, SG CIB Yes, and it’s the same with the arrangers. Customers are becoming more interested not only in our credit analysis capabilities, but also the systems. When there was a correlation crisis last year, it was obvious to investors that some banks were more stable than others. It’s important to see that a bank is consistent and is fine on its book. And so these are the investor’s selection criteria.

DP, Cheyne Capital I totally agree with David. There is also some positive feedback here: the managers who have the right architecture will be able to integrate fully with a bank’s synthetic prime brokerage. So they will get access to the fullest and most sophisticated synthetic prime brokerage platform. In fact banks and investors alike are keenest to deal with managers who have risk systems which will stand up to the sort of trading volumes necessary to run these multi-dimensional risks.

Future developments

AC, Euromoney How do you see the future of the market?

AB, Deutsche The development of our market depends on the dealers’ capacity to source the assets and to manage their residual risks. That’s the key point. As for the products of the future, on the one hand there is a huge trend towards commoditization. That means we need deeper markets in things like recovery and volatility, and we need more observability in some of the bespoke pricings, and this is happening. On the other hand, this market continues to be driven by innovation. And innovation means that we need to expand the correlation technology into new asset classes, like leveraged loans and ABS, but also SMEs & mid-caps and so on. Commoditization and innovation go together as we need a commoditized market to hedge new structures.

DL, Cairn Yes, and I think 2005 was certainly a year of innovation. It was incredible the way the market innovated to deliver opportunities to the investor market. As an example, after the correlation melt down last May, the banks suddenly realized they had a risk management issue. The innovation that arose as a consequence was leveraged super-senior.

LF, Calyon Also it led to a large increase in money allocated to the equity part of the capital structure in particular. At these correlation levels, the credit markets are able to compete with the performance of the other markets, even in a booming equity market. Traditionally credit markets were seen by fast money investors as a capped upside (stated coupon) and a large out-of-the-money downside risk (default).

DL, Cairn But that’s the really exciting thing. You’ve got the innovation and you’ve got different classes of investors who can participate in all parts of the capital structure. So as things become more liquid and volumes increase, it should get more exciting for everybody.

COC, Fortis I would agree that the correlation crisis broke the market out of the rut it had got into, and we have started offering a greater range of product to a greater range of investors. It has been a very broadening year for the market.

HLL, SG CIB The innovation we’ve brought to the market in 2006 has been leverage based on VAR, and I do believe that this will develop. Zero coupon equity was a new form of leverage, but not really innovative, as it’s similar to things that have been done before. But leverage based on VAR, well, we are proud that we are able to offer that now. We have developed a platform which can compute a potential loss on a credit portfolio with a very strong stress test, a 10-year shock. The rule is very simple: the potential loss should never exceed the collateral available. The outcome is dynamic leverage based on a value-at-risk. It’s a really interesting idea, which I believe others will follow.

JC, Fitch Yes, leverage has brought with it more market-value-type triggers, and that means that it’s more important than ever for investors not just to look at the credit risk and the default risk, but also to consider the market risk and the risk of downgrades.

LF, Calyon Well I agree that there are many opportunities in the structured credit & CDO market for various types of investors. There is an obvious trend towards convergence between the actual cash assets and the synthetic market. On top of the fact that correlation is currently being priced on a daily basis within a liquid indices market, I see the emergence of CDS on ABS as one of the most important developments of the past 12 months in the CDO market. There are billions traded every week in that market and for me that’s probably the main trend of the first quarter. There are further developments on the loan side for the synthetic market.The evolution of the structured credit market is also shaping organizations too, because even relatively traditional investment banks are increasing allocating resources and capital towards structured credit activities, which eventually is also good for managers and investors.

AC, Euromoney Thank you all very much. That’s all we have time for.