Who holds CDOs?

The FT has a report on Citibank information on the owners of CDOs.

Similarly, I guessed that those buying the so-called “equity” tranches (which are wiped out first if the value of the underlying assets falls) would be hedge funds or investment banks.

Not so. Measured on a global basis, Citigroup’s data suggests that its hedge fund clients hold about 50 per cent of their CDO exposure in equity tranches. But, asset managers who are not classic hedge funds have more than 40 per cent of their CDO exposure in equity tranches too.

Indeed, these asset managers hold less than 20 per cent of their CDO exposure in the form of AAA-rated, senior tranches. And – most striking of all – that proportion of senior debt is actually lower than at hedge funds, insurance companies or banks. (Banks have a whopping 60 per cent of their CDO exposure in senior tranches, although this pattern varies sharply across regions.)