S&P rates hedge fund of funds CDO

Ratings agency Standard & Poor’s (S&P) said it has rated a hedge fund-backed collateralised debt obligation (CDO) issued last week by Diversified Strategies, a special-purpose vehicle. Cayman Islands-based Investcorp Management Services is the investment adviser and Credit Suisse First Boston is the placement agent.

According to S&P, Diversified Strategies will invest the proceeds – $165.5 million and €16.2 million – in at least 25 different hedge funds, including convertible arbitrage, equity market-neutral, equity long/short and risk arbitrage strategies.

S&P said this was the second structured hedge fund of funds transaction it has rated. It rated a $374 million offering issued last month by Man Glenwood Alternative Strategies I. Man Investment Products, based in London, was the portfolio manager, Switzerland-based Man Glenwood was the investment advisor and JP Morgan Securities was the placement agent for that transaction.

The Diversified Strategies notes are divided into class A, B, C-1 and C-2 in the amounts of $125 million, $32.5 million, $10 million and €16.2 million respectively. The class A is rated triple A, B is rated single A and both class C-1 and C-2 are rated triple B. “We were able to rate this transaction basing our analysis on the simulated net asset value of the investments that the fund will make and by using various benchmark indexes as proxies for expected returns on the hedge funds,” said Sandra Harris, director in S&P’s structured finance group in New York.