Structured Products

Through DCM, we manage 28 structured products, with total assets of approximately $8.8 billion as of 04/01/2010 :

• Twelve of the structured products are CLOs that invest mainly in bank loans,
• Eleven are CDOs that invest mainly in asset-backed securities, and
• Four are CDOs that invest mainly in corporate bonds.

The CDO management teams consist of 18 portfolio managers and analysts.
Our position as a leading CDO manager is illustrated by our becoming the investment manager for two existing CDOs that had been managed by other investment advisers:

• In July 2008 we acquired the management contract for Robeco CDO II Limited, a CDO collateralized primarily by high-yield corporate bonds, and
• In February 2009 we assumed the management contract for Mayfair Euro CDO I B.V., a Euro-denominated CDO collateralized primarily by investment grade and high-yield corporate bonds.

Separately Managed Accounts

We manage our separate accounts pursuant to our RPM (Return Profile Management) program, which is a quantitative strategy for managing the duration profile of bond portfolios. We manage approximately $320 million of client assets in the program as of 04/01/2010 .

RPM is designed to add value in relation to a chosen benchmark by dynamically varying the portfolio’s mix of a low duration asset (cash) and an asset with duration risk (either U.S. Treasury securities or Agency securities). Duration essentially measures the market price volatility of financial instruments as a function of interest rate changes. The portfolio begins with a mix of cash and bonds, resulting in a duration equal to the starting target designated for each account. The RPM model is designed to then either lengthen (as rates move up) or shorten (as rates move down), the portfolio’s duration in response to changes in interest rates.

RPM does not involve forecasting of interest rates. Instead, decision-making is based on rate trends and volatility. RPM generally is implemented with U.S. Treasury securities or Agency Securities to maximize liquidity and reduce transaction costs. RPM can be tailored to each client's desired return distribution.

Other Investment Vehicles

During our 17-year history, we have managed various other types of investment products, such as several kinds of fixed-income hedge funds.

Investment Process

Our strategies for managing client accounts are based on established investment processes across our range of products. Our portfolio management teams use fundamental credit analysis and qualitative analyses as well as various quantitative models in formulating trading decisions. The teams generally consider the specific characteristics of each asset class within the framework of broader macroeconomic and market conditions, as well as credit and liquidity trends, to determine appropriate portfolio positioning.  Our analysts evaluate industry conditions, the creditworthiness of individual issuers and the features of individual securities in order to recommend relative industry weightings, update our proprietary rating system and provide ongoing surveillance throughout the holding period.

Our investment philosophy and investment process use an integrated investment team for managing each investment strategy, with each team member typically sharing responsibility for various functions. Each team is headed by a manager with extensive experience in the team’s specific strategies. Each team focuses on portfolio management, research, trading, portfolio administration and development of analytical models, and typically draws on the experience of other teams.