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.

Many people have trouble in coming up with new ideas or solutions to a problem. The answer often lies in fostering innovation, by creating the right conditions to be innovative or simply to see the best way forward. If this is to work and be sustainable, the climate for decision-making must be as positive, open and encouraging as possible. Linked with this is the need for people to feel valued. If they do not, there is a risk that they will be negative about the change, reactive rather than proactive.

Or they may decide to leave. One way of fostering innovation is to encourage employees to question the way things are done or decisions that have been made. Removing or minimising barriers (such as bureaucracy and hierarchy) can drive innovation, and so can an ability to exert mild pressure, perhaps by setting deadlines. Techniques that help spur creativity and innovation include brainstorming and mind mapping, as they help individuals to come up with ideas and to see patterns or organise information in such a way that patterns and ideas develop.

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.