Merrill Lynch has announced that it is set to launch the first FX CDO (collaterised debt obligation) or CFXO (collateralised FX obligation), an investment product designed to apply the CDO technology commonly used within the credit world to foreign exchange as an underlying asset class. The CFXO will be managed by Credit Agricole Asset Management (CAAM) and rated by S&P.
The CFXO product allows institutional investors, for the first time, to take rated exposure on a basket of FX assets. This new format completes the product suite available to investors within rated notes issuances, whilst also bringing diversification to investment portfolios. The launch of this first ever FX CDO product signifies an important development in the FX market, establishing FX as a significant asset class in its own right.
It will also allow investors to gain exposure to currency whilst benefiting from maturity and a yield and rating corresponding to the chosen tranche. Because of its very low correlation with traditional asset classes, this structure provides an efficient tool for diversifying investors’ portfolios, Merrill Lynch says.
The notes will be offered in all major currencies with a 5 year maturity, with both rated tranches (from AAA to BBB, by S&P) and equity. The CFXO will be arranged by Merrill Lynch and will benefit from CAAM's combined FX management and managed structured product expertise. A global roadshow is scheduled for the coming weeks.