The alphabet soup of complex investments that Wall Street created in recent years — R.M.B.S.'s, C.D.O.'s and the like — includes C.F.O.'s, short for collateralized fund obligations.
The growth of the mutual funds and collateralized funds helped the market for leveraged loans quadruple in size between 1993 and 1999, rising to $626 billion from $150 billion, according to Donaldson.
These may not whet the appetite of international investors, says Mike Brown, the CEO of Gensec Bank in Johannesburg, but he recommends the Kiwane Fund, a CDO (collateralized debt obligation) fund.
As the manager of a collateralized debt obligation fund, he is continuing to buy some new issues, but lately he has been spending more of his cash buying existing loans in the secondary market.
Financial stocks have proved especially vulnerable to the Bear Bust, but not just the big banks involved with hedge funds, collateralized debt obligations and junk securities.
Sales of collateralized debt obligations, funds set up to invest in these credit products, fell to $9 billion in July from $42 billion in June, according to research from JPMorgan.
The original idea was to sell both loans in pieces to investors such as hedge funds, other banks and collateralized loan obligations, special funds set up to invest in loan deals.
With no ability to sell risky loans or slices of collateralized debt obligations, the funds started dumping stocks they owned and buying back stocks they had borrowed.
The Dutch company said Monday in a statement that while it had "no direct exposure" to Bernard Madoff Investment Securities, it had provided collateralized lending to certain funds that did.
Banks arrange the loans and sign up buyers, usually hedge funds and collateralized loan obligations in the heyday.
Those bank loans and bonds were sold to other investors, such as hedge funds and collateralized loan obligations that often borrowed to buy them.
