tag:blogger.com,1999:blog-3764912039741974037.post241023097047981974..comments2024-03-10T06:35:25.018-04:00Comments on Expect[ed] Loss: "Moody's, we have a problem!"PF2http://www.blogger.com/profile/13893025381406343985noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-3764912039741974037.post-76372539846965136452009-04-16T12:31:00.000-04:002009-04-16T12:31:00.000-04:00The diversification referred to is at the corporat...The diversification referred to is at the corporate, industry and geography level rather than the type of security. This broad-nature of this crisis has seriously reduced the value of this diversification. In my view this was sufficiently unexpected to justify the original value of the diversification. It should also be noted that there remains some significant benefit from this diversification.<br /><br />The more important correlation seems to me analogous to the US housing situation in which the diversification was wiped away by the underlying asset prices. <br /><br />You are right to question the NAV, but do not get too distracted by this issue as these are strongly cash-flow based. The relevant time period is not 2024 but rather 2012-2015. Still too far out to rey too much on the modeling, but let's not overstate the problem. Also, the problem is not quite as complex as you present as the relevant question is portfolio performance rather than timing, dispersion etc. which would be much more difficult to model.<br /><br />When might the RAs have begun to downgrade? Look at when the market started revaluing these assets significantly (more than 15% down). Look at Standard Life European Private Equity which is a half decent proxy. <br />http://www.google.com/finance?q=LON%3ASEP<br /><br />The market was not substantially discounting these assets until October 2008. <br /><br />Your other comments about the effectiveness and independence of the RAs seems to me very on the mark, although I'm not sure more data would help or not.<br /><br />Should these types of transactions been rated in the first place? Interesting question about CDOs overall. While the methodology around reducing risk through seniority tranching is unassailable. The key question to my mind is how to determine the pricing of the tranches. Is the sensitivity of performance of the tranches too high to rely upon for accurate pricing.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3764912039741974037.post-37497128766647043452009-04-01T09:02:00.000-04:002009-04-01T09:02:00.000-04:00These PE funds mightve been somewhat diversified b...These PE funds mightve been somewhat diversified before the crash but yes they have been slaughtered now for over 2 years because they're so highly geared.<BR/><BR/>And this is exactly what the rating agencies do in corporate M&A, simply dumb their model on top of yours and add some stressesAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-3764912039741974037.post-65913604295398459572009-03-31T18:57:00.000-04:002009-03-31T18:57:00.000-04:00yes this way if they get the rating wrong they can...yes this way if they get the rating wrong they can blame the manager. niceDatum72noreply@blogger.comtag:blogger.com,1999:blog-3764912039741974037.post-27783190502025775522009-03-31T12:55:00.000-04:002009-03-31T12:55:00.000-04:00Excellent"Moody's believes that the manager is in ...Excellent<BR/><BR/>"Moody's believes that the manager is in a unique position to time the various material elements that impact the cash flow." <BR/><BR/>Maybe we should have the manager give us the rating!Comtesse du Barryhttps://www.blogger.com/profile/03452663459271736040noreply@blogger.com