Derivatives: New CDOs prompt recruitment, higher pay

Derivatives Week reports growth in the use of collateralized debt obligations (CDOs) based on portfolios of credit default swaps (CDS) derived from leveraged loans. Recruiters say the emergence of this kind of synthetic credit derivative product is prompting banks to hire.

Newer synthetic CDOs are seen as less risky than cash CDOs based on bonds or corporate debt, and therefore appeal to a broader range of investors.

"CDOs of CDS derived from leveraged loan obligations provide more flexibility on structures, maturity dates and tranches," says Russell Clark, a director at London-based headhunters Mantis Partners. "Demand for this product is driving up pay for synthetic credit structurers, and the drive towards a correlation approach is also stimulating demand for traders," he adds.

According to Derivatives Week, Morgan Stanley, Dresdner Kleinwort Wasserstein and Deutsche Bank are at the forefront of developing the new products. Clarke says Morgan Stanley, Barclays Capital, Merrill Lynch and Deutsche Bank are among those hiring.