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J.P. Morgan Asset Management Plans Big CDO Expansion
Total Securitization -- Institutional Investor News (January 20, 2006)
JP Morgan Asset Management is expanding its collateralized debt obligation business, with plans to launch a new CDO business in Europe. The firm also is planning its first U.S. CDO.
In Europe, the firm has hired Dominic Powell, former head of the CDO solutions group at Henderson Global Investors in London, to lead the charge. The group joins a select handful of traditional asset managers already operating in the CDO space, including AXA Investment Managers, Fortis Investment Managers, and Henderson.
Dick Oswald, head of the international fixed-income group at JPMAM in London, said he views structured finance as a growth area and the focus of the new desk is to arrange and manage cash and synthetic CDOs. Both Oswald and Powell said it was too early to pinpoint the direction of the business, how many hires will be made or if they will tap buy- or sell-side staffers. Until now, JPMAM in Europe has limited its activity in synthetic credit structures to small buy-side investments.
In the U.S., JP Morgan Asset management has been growing its cash asset-backed securities group to focus on collateralized debt obligations. It is now ramping up its first CDO, which could hit the market in the second quarter, said Jeff Sisko, v.p. and credit analyst. He declined to discuss projections of how many CDOs the group plans to do in the coming year, but noted its first CDO will be composed primarily of cash mezzanine home equity ABS.
Over the past year, the ABS has hired Sisko, who joined last year from GE Asset Management, and Kyongsoo Noh, who joined from J.P. Morgan Securities in July.
The $500 million CDO will be an actively managed deal composed primarily of cash mezzanine home equity ABS. Despite negative headlines on the housing market, the group still expects positive home price appreciation, Sisko said. The deal is still in its early stages at less than 50% ramped, so credit enhancement and structure have not been discussed with the rating agencies. J.P. Morgan Asset Management is managing the CDO and Merrill Lynch is the underwriter.
--Olivia Thetgyi, Laura Cochrane
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