Out of the ordinary

Investors have frequently been sceptical of CDOs, questioning the originating firm’s motivation for issuing. But with credit's startling performance in 2003, CDOs’ failings were quickly forgotten as investors enjoyed the natural leverage such instruments could provide


The investor base for collateralised notes of all kinds has broadened considerably over the past eight years. Securitised products are no longer the exclusive preserve of a narrow clique of investors, but have been increasingly appealing to pension funds and insurance companies as well as hedge funds and banks’ proprietary trading desks. Most recently, even private high-net-worth individuals have also become active in the market for CDOs.

So why do investors buy CDOs? After all, it is the

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