Synthetic Collateralized Debt Obligations (CDO) Squares and the Continuing Evolution of Funds of Funds

Abstract

This chapter focuses on synthetic collateralized debt obligations (CDO), which is a new class of pooled investment funds that replicate the structural features of funds of funds but deliver debt-based, rather than equity-based, returns. This product possesses the structural features of a fund of funds, and like other funds of funds, provides investors with intermediated exposure to a diversified portfolio of instruments and also enables investors to benefit from securitization transactions whose securities may be illiquid or otherwise unobtainable. The cash contributions of investors are pooled by the fund manager and invested in an actively managed portfolio of, typically, asset-backed secu..