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Discredit derivatives: Difference between revisions
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}}[[discredit derivatives|Discredit derivatives]] are a class of [[derivatives]] invented by swap pioneer {{author|Hunter Barkley}}. They allow [[alternative investment funds]] who have lazily committed to [[environmental, social, and corporate governance]] standards in their [[prospectus]]es that they cannot now meet, to green-wash their investment portfolios. “It’s discredit avoidance rather than evasion,” said Barkley. | }}[[discredit derivatives|Discredit derivatives]] are a class of [[derivatives]] invented by swap pioneer {{author|Hunter Barkley}}. They allow [[alternative investment funds]] who have lazily committed to [[environmental, social, and corporate governance]] standards in their [[prospectus]]es that they cannot now meet, to green-wash their investment portfolios. “It’s discredit avoidance rather than evasion,” said Barkley. | ||
===Prehistory=== | ===Prehistory=== | ||
The funds originally regarded [[ESG]] as a cheap way of [[virtue-signalling]] to [[Ultimate client|investors]], but never thought anyone other than their clients’ [[HR]] departments would care. After all, who, in her heart of hearts, ''really'' objects to massively profitable leveraged investments just because they happen to be in firearms, narcotics or [[financial weapons of mass destruction]]? | The funds originally regarded [[ESG]] as a cheap way of [[virtue-signalling]] to [[Ultimate client|investors]], but never thought anyone other than their clients’ [[HR]] departments would care. After all, who, in her heart of hearts, ''really'' objects to massively profitable leveraged investments just because they happen to be in firearms, narcotics or [[financial weapons of mass destruction]]? | ||
To be sure the funds were largely right about that — no-one ''does'' care about that in the City — until European regulators, post-Brexit, decided they ''did'' care after all, and should hold [[hedge fund]]s to account for false advertising if they claimed the sanctimony of [[ESG]] on paper without observing it in practice. | |||
===Early years: single-name [[discredit put]]s=== | ===Early years: single-name [[discredit 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]] off 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 ignomy of outrageous investments? | Barkley’s idea was simple: if it was okay to extract the crappy credit profile from a [[CDO squared|portfolio]] of [[mortgage|mortgages]] off 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 ignomy of outrageous investments? | ||