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{{image|Screenshot 2020-11-05 at 18.39.20|png|It’s the Real Thing.}}}}''JC first published this article two years before [[sustainability-linked derivatives]] emerged on the scene. Life imitates art, once again.'' | {{image|Screenshot 2020-11-05 at 18.39.20|png|It’s the Real Thing.}}}}''JC first published this article two years before [[sustainability-linked derivatives]] emerged on the scene. Life imitates art, once again.'' | ||
[[ | {{Drop|I|t is said}} beatnik [[Fi-Fi]] hack and sometime swap pioneer {{author|Hunter Barkley}} came up with the idea of [[discredit derivatives]] at the fag end of an epochal [[synthetic alpha]] bender he went on with some hedge fund buddies in Mallorca in the dog days of 2016. “It was quite the come down.” | ||
The “turpitude swap”, as he termed it, was meant for fund managers like his buddies who rode the eco-wave with lazy public commitments to [[environmental, social, and corporate governance|ESG]] principles. In 2010 that seemed like a fine wheeze: toss out easy, throwaway promises no one would check and watch the [[AUM]]s come rolling in. | |||
When these carefree days collapsed into press Intrusion and cavity searches by freelance ESG consultants, the managers were stuck, so Barkley reasoned, with a problem that must be eminently ''hedgeable''. His product would let11 these funds to “brown-wash” their investment portfolios. | |||
“It’s ESG avoidance, rather than evasion,” said Barkley. | |||
===Early years: single-name [[turpitude put]]s=== | ===Early years: single-name [[turpitude put]]s=== | ||
Barkley’s idea was simple: if it was okay to extract the crappy credit profile from a [[CDO squared|portfolio]] of [[mortgage|mortgages]] | Barkley’s idea was simple: if it was okay to extract the crappy credit profile from a [[CDO squared|portfolio]] of [[mortgage|mortgages]] A | ||
and lay ''that'' off on someone with “sufficiently deep market expertise and advanced models to bear the risk indefinitely”<ref>Yes, I know what you are thinking: a sleepy Landesbanken from Lower Saxony would be ''exactly'' such a someone, right?</ref> why not do the same thing with the unwanted ignominy of outrageous investments? | |||
Barkley began to construct instruments — at first, simple [[put option]]s — laying off the shame on those who could most easily absorb it; namely — and this was Barkley’s real genius — ''the very badly-run, environment-wrecking corporates that were polluting the hedge fund portfolios in the first place''. The [[hedge fund]] would write an [[at-the-money]] [[stigma put]] to, for example, the Golden Crown Palm Oil Company of Sudan Pty. Ltd. (and for which it would ask little by way of premium; after all, really, what did Golden Crown care? It was ripping up the Bandingilo national park already, so what is a little more remorse?), thus getting rid of the fund’s disgrace for investing in ''that very company''. | Barkley began to construct instruments — at first, simple [[put option]]s — laying off the shame on those who could most easily absorb it; namely — and this was Barkley’s real genius — ''the very badly-run, environment-wrecking corporates that were polluting the hedge fund portfolios in the first place''. The [[hedge fund]] would write an [[at-the-money]] [[stigma put]] to, for example, the Golden Crown Palm Oil Company of Sudan Pty. Ltd. (and for which it would ask little by way of premium; after all, really, what did Golden Crown care? It was ripping up the Bandingilo national park already, so what is a little more remorse?), thus getting rid of the fund’s disgrace for investing in ''that very company''. |