CDOs provide flexible financing in down
This spring didn't look like an auspicious time to offer a loan
fund, as the downgrades of both General Motors and Ford Motor
to junk status touched off turmoil in the leveraged credit and
credit derivative markets.
McDonnell Investment Management's Loan Opportunity Fund
offshore, which launched in April, initially bore out such
sentiment. In its first month of operation, the fund reported a
negative net return of 1.31%.
But then the benefits of a neat financing tool - term
leverage - kicked in. While many funds had to sell into this
spring's downturn, either because of investor redemptions or
because dealer-provided leverage was called in, the McDonnell
strategy - which has the capacity to raise $70 million in
equity - swooped in to buy up leveraged bank loans and junk
bonds, and did so with increasing leverage.
The McDonnell fund rose 0.58% (net) in May as...