Abstract
The structured credit products market has seen a rapid proliferation of new products that fit under the rubric of a “CDO Squared” (or “CDO2”). Most underwriters now offer several different forms of this product, and many of the leading fixed-income investment managers are managing several portfolios of this type. But as the product has evolved from a simple, well-understood structured offering to a series of ever more complex and varied structured products, there has ceased to be a clear understanding of this product, particularly among investors. This article offers a methodology for characterizing the diverse products generally known as CDO2 into four basic paradigms, cash CDO2 formed to invest in CDO debt, cash CDO2 formed to invest in CDO equity, synthetic CDO2 referencing CDO securities, and synthetic CDO2 referencing single-tranche CDOs.
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