Alternative Products are designed to take advantage of Cutwater's deep credit expertise in spread sectors such as
structured finance, by identifying attractive relative value and risk-adjusted opportunities across
the breadth of the market. Current Alternative Product offerings include Cutwater's Credit Opportunities Strategy
and Corporate Credit Absolute Return Strategy.
The Credit Opportunities Strategy seeks to capitalize on credit and liquidity stress in the market affecting structured finance securities and corporate credit to deliver high absolute and risk-adjusted returns over a three to five year investment horizon. This strategy focuses on structured finance securities across a broad arrange of subsectors including residential and commercial mortgage-back securities, collateralized debt obligations and asset-backed securities. Investments may include sectors or securities that are performance-distressed or credit-impaired and may include securities that are structurally subordinated in the securitization capital structure. While the strategy is primarily focused on U.S. structured finance securities, it does have flexibility to purchase non-U.S. structured products and other spreads sectors of the fixed income market (including investment grade and high yield corporate credit, municipal securities). The strategy is run without limits on credit quality. Cutwater can work with prospective clients in this strategy to customize around the client's risk and return objectives and guideline constraints.
The Corporate Credit Absolute Return Strategy seeks positive absolute return while protecting against interest rate risk through a combination of long and short positions. The strategy attempts to enhance returns through quantifiable spread product risk and relative value analysis, with focus on pure alpha (credit specific risk) while neutralizing beta (general market risk). Issue selection is determined by the vigorous analysis of the key drivers of credit performance. Our unique approach to credit (lender's perspective) and valuation analysis (margin of safety) combined with our multiple-cycles of experience in understanding the technical factors that contribute to price movements are synthesized within a trading oriented vehicle. The strategy's goal is to provide strong returns on both an absolute and risk-adjusted basis. Additionally, the strategy has shown virtually no correlation to traditional fixed income strategies and low correlation to other risk taking strategies. The primary opportunity set is investment grade credit, high yield with a focus on BB's. Purchases of preferred and hybrid securities, along with corporate focused ABS are opportunistically purchased. The strategy does not employ leverage and invests in liquid collateral that we believe can be liquidated even in stressed markets.