Friday, February 13, 2009

Blackstone, or Bruce Lee

Bruce Lee's Game of Death was more than just an action flick.

On a macro level, it showed Hollywood's ability to cast something as something else: with Lee's life having come to a tragic end before the movie was finished the director managed to finish the film using a look-alike and archived footage from Lee's other films, and only 15 minutes of actual footage.

On a more micro level, it showed Lee, in the now-famous yellow track suit (remember Uma Thurman in Kill Bill?) first mimicking the other factory motorcyclists (in uniform), and then distinguishing himself against a rigid, conservative praying-mantis-kung-fu-artist in the "Palace of the Dragon."

In a climactic final scene, he regularly changes style until he's able to out-maneuver the lanky, awkward-seeming 7'2" Lakers basketball player, Kareem Abdul-Jabbar. Flexibility. Artistic differentiation.

Blackstone's announcement today -- regarding their proposed change of investment objective and policy of their Carador plc vehicle -- is similarly impressive.

Recognizing that senior (AAA) CLO tranches are trading at distressed levels ($70 range, or spreads around 550 bps), they may feel that these tranches have a similar risk profile -- in terms of expected loss, volatility -- to the assets described in their policy: equity and mezz CDO tranches.

From their circular to Carador shareholders:

Change to the investment objective and investment policy

It is proposed to amend the investment objective and the investment policy of the Company to permit investment in the Senior Notes of CDOs which are collaterised by senior secured bank loans, namely CLOs.

The current investment objective of the Company is "to produce attractive and stable returns with low volatility compared to equity markets by investing in a diversified portfolio of equity and mezzanine tranches of CDOs". The investment Manager believes that in the current market environment Senior Notes, as more senior tranches in the CDO structure, may provide an attractive return with a lower risk profile.

While sometimes you're forced to play the same game, at least for a while, Blackstone's nimbleness (think Bruce Lee's flexibility) in this instance differentiates them.

And best of all we may have a new CLO AAA buyer at the end of this. Ah, the "economy of motion."

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