Economy & Credit Chest

In a basic static transaction a sponsor selects a portfolio of about 100 or more investment grade names. Once a static synthetic CDO begins, the reference portfolio remains fixed until maturity. In a static pool delivered obligations usually must be liquidated within a preset timeframe. Some typical trading activities in managed synthetic deals include:

• Terminating credit-improved CDS to generate cash into the CDO
• Terminating credit-deteriorated CDS to avoid/limit future losses
• Buying protection for a smaller amount
• Conducting limited discretionary trading, that is, 10–20 percent annual portfolio turnover.

Normally, managed pool risk offers lower expected loss and lower probability of large loss.

One way of appraising competing options is to look at the desired outcome and then see which option will achieve it. This simple approach is often complicated by the need to prioritise goals, reduce costs or minimise risk, and in selecting the best option usually involves trade-offs and compromise. Another approach is to establish criteria for the final decision – for example, it needs to work quickly, not be expensive, take a reasonable amount of time to organise and so forth – and then score each option against these components on a scale of 1–10. The highest-scoring option wins. With both approaches, you need to fully understand what each option requires, how it works and what it achieves.

Effective decision-making depends on a collection of leadership skills that can be learnt and are often closely linked. These include the following:

• An ability to foster innovation and creativity and to exploit synergies between people, sometimes disparate and distant teams.
• The intelligence and courage to recognise and learn from mistakes.
• The perception and sensitivity to analyse competing options, and the ability to help others to find their solutions.
• Skills of delegation and empowerment so that decision-making can be devolved to others in the organisation with sufficient time or insight.
• The capacity to motivate people so that they are inspired to prevent or solve problems themselves, as well as proactively implementing decisions.
• An ability to focus others on the twin issues of serving customers and managing change.
• Skilled communication.
• The courage and ability to make critical decisions.

• Brand management
• What is the purpose of the brand? What values does it need to emphasise to customers?
• How can the brand be used to greatest effect?
• Is sufficient attention given to building and publicising the brand?
• Is the brand used consistently?
• Is the product in the best part of the market, or is repositioning needed?
• What is the best way to appeal to customers? How should the product be sold?
• Avoiding a head-on confrontation with the market leader is often a wise course. Is this happening, or are you in danger of waking a sleeping giant?
• Is a simple, consistent and compelling message being used to sell the product?
• Do you measure the profitability of customers?
• Are you targeting, attracting and retaining the most profitable customers?
• What plans are in place to keep customers loyal? Are they appealing to customers and difficult for  competitors to copy?