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Hedge Funds Resurrect CDO Trade. This Time They Say It Will Work

  • GSO, Palmer Square issue new collateralized debt obligations
  • Securities at heart of 2008 crisis lure yield-hungry investors
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Why Hedge Funds Are Resurrecting the CDO Trade

Hedge funds and other investors are reviving a type of securitized product that blew up during the financial crisis. This time around they’re convinced that the structures will not only weather the next downturn, but might even profit from it.

Money managers are resurrecting collateralized debt obligations that bundle risky bonds and loans into new, higher-rated securities. Issuers such as Anchorage Capital Group and Fortress Investment Group are betting tweaks to the products will allow them to keep enough cash on the sidelines that, when the next slowdown hits, they’ll be able to swoop in and buy the most beaten-down debt on the cheap.