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Discredit derivatives: Difference between revisions
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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 | To be sure the funds were largely right about that — no-one ''does'' care about that sort of thing in the City — until European regulators, post-Brexit, decided they ''did'' care, 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. Especially British ones. | ||
===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 | 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 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 wear 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 wear 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. | ||