Credit Suisse First Boston today priced the $250 million Diversified Strategies CFO S.A., the first securitisation of a fund of hedge funds. The transaction is structured as a market value collateralized fund obligation (CFO) managed by Investcorp, a Bahrain-based investment group with over $2.8 billion of hedge fund assets under management. Credit Suisse First Boston is sole lead manager and bookrunner for this transaction.
The five tranche issue, which totals $250 million, with a maturity of 5 years, has been priced today as follows:
Class Size % of total Fitch/Moodys/S&P rating Spread over 6 month $ LIBOR
A $125m 50 AAA/Aaa/AAA +60 basis pointsB $32.5m 13 A/A2/A +160 basis pointsC1 $10m 4 BBB/Baa2/BBB +280 basis pointsC2 E16.2m 6 BBB/Baa2/BBB 6m Euribor + 270 basis pointsD $67.5m 27 unrated (equity)
Over 200 investors were approached on this transaction, with a large number of these being visited on the roadshow to educate debt investors on this new asset class. The transaction was successfully distributed to a broad range of investors globally. The debt tranches were over-subscribed as traditional CDO investors welcomed the opportunity to diversify into an alternative asset class as well as gain access to an experienced fund of funds manager.
Jim Vos, Managing Director at CSFB, said: “We are delighted to have led the first securitisation of a fund of hedge funds. We look forward to leveraging our expertise in this new asset class to expand the market for hedge fund securitisation”.
Adrian Carr, Managing Director at CSFB, said: “This transaction will no doubt set a benchmark for the CFO market going forward. Together with Investcorp, we have brought to market a highly successful and truly new and innovative financing product”.
Investcorp Management Committee member Ibrahim Gharghour said: “We are delighted that, together with CSFB, we have brought to market such an innovative new product, which taps the growing desire by institutional investors to diversify their CDO assets. This deal breaks new ground, and we’re not surprised to hear market talk of other deals using this structure.
Investcorp Management Committee member Deepak Gurnani said: “As a new product, we’ve undertaken extensive marketing to explain the advantages of the structure, which has contributed to the pricing today of all tranches in line with the initial indicative pricing.”
The Diversified Strategies CFO is rated by S&P, Moodys and Fitch and will invest in a broadly diversified fund of hedge funds, tracking the performance of Investcorp’s established Diversified Strategies Fund. Investments will be heavily tilted towards relative value strategies, but will also include some more directional strategies.