S&P rates hedge fund of funds CDO

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.