Bespoke portfolio (CDO)
What is a bespoke portfolio?
A bespoke portfolio is a group of reference securities serving as a reference portfolio for a synthetic CDO organised by an investment bank and specified by a certain investor. A bespoke portfolio is not a corporate credit index like CX or iTraxxx.
Where have you heard about bespoke portfolios?
In principle the investor will choose the reference securities and chooses the “attachment” and “detachment” points. In reality, the investor will have a great deal of input in all these things but they will not be the be only ones making the decisions.
What you need to know about bespoke portfolios.
CDO usage was at an all time high in the early 2000s. In 1999 the total CDO issuance was less than $10 billion and by 2005 it had risen to $294 billion according to Rajan, McDermott and Roy. The main advantages of a bespoke portfolio to investors is that it grants them specification of the reference securities within that portfolio as well as the tranche's attachment and detachment points. Arrangers also like the ease at which CDOs are set up. Single tranches on bespoke portfolios can take just four to six weeks to establish and costs can be just $500,000.