Indra Rajaratnam

The famous line “Please, sir, I want some more” from Oliver Twist comes to mind when thinking of investors in the innovative financial markets that have an appetite for more credit risk, more leverage and more yield-enhancing opportunities. Just as, through metamorphosis, the caterpillar is transformed into a butterfly, through financial engineering, a single-name credit default swap (CDS) can transform into a multi-name credit derivative or a funded credit-linked note.

The single-name CDS is the “vanilla essence” of the credit derivatives market, and is the primary building block of many exotic credit products. But, as more leverage is built into a transaction, risk is invariably also compounded. This product, however, also constitutes a critical credit risk mitigation tool in its own right.

Although, in the past, structured credit products predominantly resonated with institutional investors due to their complexities requiring specialised financial knowledge, these products have since ignited interest from retail investors. This demographic of the investor base can now tap into investments in the CDS market through innovative exchange-traded funds that package credit

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