I wrote this email in August 2005 to Janet Tavakoli, the supposed CDO guru, because I was concerned that Australian councils were buying CDOs and had no idea why. If only she'd shown a little more encouragement....
> From: Janet Tavakoli [mailto:jt@tavakolistructuredfinance.com]
> To: 'Jonathan Shapiro' [mailto:jshapiro@insto.com.au]
> Sent: Wed, 31 Aug 2005 21:32:07 +1000
> Subject: RE: CDOs in Australian council portfolios
>
> As a matter of policy, I do not provide information - other than what is
> available on my web site - to non-clients. Good luck with your research.
>
> Janet Tavakoli
> President
> Tavakoli Structured Finance, Inc.
> 360 E. Randolph St., Suite 3007
> Chicago, Illinois 60601 USA
> (312) 540-0243
> e-mail: jt@tavakolistructuredfinance.com
> web site: www.tavakolistructuredfinance.com
>
> ________________________________________________
> This e-mail message and all attachments transmitted with it are intended
> solely for the use of the addressee and may contain information that is
> legally privileged, confidential or exempt from disclosure under applicable
> law. If the reader of this message is not the intended recipient, or an
> employee or agent responsible for delivering this message to the intended
> recipient, you are hereby notified that any dissemination, distribution,
> copying, or other use of this message or its attachments is strictly
> prohibited. If you have received this message in error, please notify the
> sender immediately by replying to this message and please delete it from
> your computer.
>
> -----Original Message-----
> From: Jonathan Shapiro [mailto:jshapiro@insto.com.au]
> Sent: Wednesday, August 31, 2005 1:24 AM
> To: jt@tavakolistructuredfinance.com
> Subject: CDOs in Australian council portfolios
>
>
> Hi Janet,
>
> I am e-mailing you from Sydney in Australia. For the past two months, I have
> been researching CDOs and structured credit products as we are hosting a
> conference on High Yield investments and are planning to host a training
> course on synthetic CDOs. I have made extensive use of your website and have
> come across a number of articles in which you have been used as a key
> source, so as far as I am concerned- you are my CDO guru !
>
> For the past few days, I have been ringing up middle market investors from
> the local councils. Most of the councils have investment portfolios of 30
> million Australian dollars (approx 22.5 million US). The councils adhere to
> local government guidelines which advise what they should invest in. As far
> as I understand it recommends that the councils should not invest in assets
> that are rated lower than A-.
>
> I have come across a number of councils that have a large portion of their
> portfolios invested in CDOs. One council said that they had 90% of their
> portfolio in CDOs, while others had 30-40%. Many did not invest in CDOs.
> Technically, they are allowed to invest in CDOs as their ratings fall within
> the guidelines.
>
> I asked why they invested in CDOs and many said they could not find the
> returns they wanted in other investments in those credit rating categories.
> I al I also asked who advises them and a name that came up quite often was
> the name of a local investment bank that structures CDOs, and other
> investment advisers that 'actively encouraged' investment in CDOs .
>
> My questions are: Does the rating agencies accurately reflect the risk ?If
> they don't, this is of great concern. What are the basic risks of CDOs? ie
> what can really go wrong ? are they correlated ? Is it prudent to hold such
> a high proportion of CDOs in a portfolio, especially a portfolio of public
> money. Have the risk models of the rating agencies changed since Enron?
>
> Also are US councils large investors in CDOs ?, do they have to adhere to
> mandates and do US council finance managers possess strong financial
> knowledge?
>
> I am also sceptical of the financial knowledge of these council finance
> managers and the conduct of investment banks in promoting CDOs and acting as
> advisors. Perhaps I am overstating the risks of CDOs and understating the
> abilities of the rating agencies.
>
> Although we are a financial services publication, whose strength is in
> capital markets, following up on these issues are not really in our
> interest. We have a close relationship with many of the banks who are
> involved in our events and for the most part we service them by providing
> them with information on fixed income markets. However I would be interested
> to understand the role of CDOs in public portfolios and would be very
> interested to hear your opinions on this matter, if you have an opportunity.
>
>
> Kind regards,
>
> Jonathan
>
> ================================
> Jonathan Shapiro
> Research Associate
> insto
> Level 6, 67 Albert Avenue
> Chatswood NSW 2067 Australia
> t +61 2 9004 8613
> f +61 2 9004 8699
> m +61 401 605 640
> e jshapiro@insto.com.au
> w www.insto.com.au
> ================================
> This e-mail is for the use of the intended recipient(s) only. If you have
> received this e-mail in error, please notify the sender immediately and then
> delete it. If you are not the intended recipient, you must not use, disclose
> or distribute this e-mail without the author's prior permission. We have
> taken precautions to minimize the risk of transmitting software viruses, but
> we advise you to carry out your own virus checks on any attachment to this
> message. We cannot accept liability for any loss or damage caused by
> software viruses.
> To: 'Jonathan Shapiro' [mailto:jshapiro@insto.com.au]
> Sent: Wed, 31 Aug 2005 21:32:07 +1000
> Subject: RE: CDOs in Australian council portfolios
>
> As a matter of policy, I do not provide information - other than what is
> available on my web site - to non-clients. Good luck with your research.
>
> Janet Tavakoli
> President
> Tavakoli Structured Finance, Inc.
> 360 E. Randolph St., Suite 3007
> Chicago, Illinois 60601 USA
> (312) 540-0243
> e-mail: jt@tavakolistructuredfinance.com
> web site: www.tavakolistructuredfinance.com
>
> ________________________________________________
> This e-mail message and all attachments transmitted with it are intended
> solely for the use of the addressee and may contain information that is
> legally privileged, confidential or exempt from disclosure under applicable
> law. If the reader of this message is not the intended recipient, or an
> employee or agent responsible for delivering this message to the intended
> recipient, you are hereby notified that any dissemination, distribution,
> copying, or other use of this message or its attachments is strictly
> prohibited. If you have received this message in error, please notify the
> sender immediately by replying to this message and please delete it from
> your computer.
>
> -----Original Message-----
> From: Jonathan Shapiro [mailto:jshapiro@insto.com.au]
> Sent: Wednesday, August 31, 2005 1:24 AM
> To: jt@tavakolistructuredfinance.com
> Subject: CDOs in Australian council portfolios
>
>
> Hi Janet,
>
> I am e-mailing you from Sydney in Australia. For the past two months, I have
> been researching CDOs and structured credit products as we are hosting a
> conference on High Yield investments and are planning to host a training
> course on synthetic CDOs. I have made extensive use of your website and have
> come across a number of articles in which you have been used as a key
> source, so as far as I am concerned- you are my CDO guru !
>
> For the past few days, I have been ringing up middle market investors from
> the local councils. Most of the councils have investment portfolios of 30
> million Australian dollars (approx 22.5 million US). The councils adhere to
> local government guidelines which advise what they should invest in. As far
> as I understand it recommends that the councils should not invest in assets
> that are rated lower than A-.
>
> I have come across a number of councils that have a large portion of their
> portfolios invested in CDOs. One council said that they had 90% of their
> portfolio in CDOs, while others had 30-40%. Many did not invest in CDOs.
> Technically, they are allowed to invest in CDOs as their ratings fall within
> the guidelines.
>
> I asked why they invested in CDOs and many said they could not find the
> returns they wanted in other investments in those credit rating categories.
> I al I also asked who advises them and a name that came up quite often was
> the name of a local investment bank that structures CDOs, and other
> investment advisers that 'actively encouraged' investment in CDOs .
>
> My questions are: Does the rating agencies accurately reflect the risk ?If
> they don't, this is of great concern. What are the basic risks of CDOs? ie
> what can really go wrong ? are they correlated ? Is it prudent to hold such
> a high proportion of CDOs in a portfolio, especially a portfolio of public
> money. Have the risk models of the rating agencies changed since Enron?
>
> Also are US councils large investors in CDOs ?, do they have to adhere to
> mandates and do US council finance managers possess strong financial
> knowledge?
>
> I am also sceptical of the financial knowledge of these council finance
> managers and the conduct of investment banks in promoting CDOs and acting as
> advisors. Perhaps I am overstating the risks of CDOs and understating the
> abilities of the rating agencies.
>
> Although we are a financial services publication, whose strength is in
> capital markets, following up on these issues are not really in our
> interest. We have a close relationship with many of the banks who are
> involved in our events and for the most part we service them by providing
> them with information on fixed income markets. However I would be interested
> to understand the role of CDOs in public portfolios and would be very
> interested to hear your opinions on this matter, if you have an opportunity.
>
>
> Kind regards,
>
> Jonathan
>
> ================================
> Jonathan Shapiro
> Research Associate
> insto
> Level 6, 67 Albert Avenue
> Chatswood NSW 2067 Australia
> t +61 2 9004 8613
> f +61 2 9004 8699
> m +61 401 605 640
> e jshapiro@insto.com.au
> w www.insto.com.au
> ================================
> This e-mail is for the use of the intended recipient(s) only. If you have
> received this e-mail in error, please notify the sender immediately and then
> delete it. If you are not the intended recipient, you must not use, disclose
> or distribute this e-mail without the author's prior permission. We have
> taken precautions to minimize the risk of transmitting software viruses, but
> we advise you to carry out your own virus checks on any attachment to this
> message. We cannot accept liability for any loss or damage caused by
> software viruses.
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