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February 23, 2018  

Gordian Knot Toying With SIV Re-Launch

Gordian Knot hasn’t given up on the market for structured investment vehicles.

The London firm once ran an SIV called Sigma Finance that was the largest of its kind, with a portfolio of $45 billion. But the vehicle and all others like it failed after the 2007 financial-market crash.

Now comes word that Gordian Knot founders Stephen Partridge-Hicks and Nicholas Sossidis were in the U.S. in recent weeks in an early attempt to determine the feasibility of re-starting Sigma. Their discussions focused in part on whether investors would be interested in such a product.

SIVs typically funded investments in structured products and other debt instruments by selling immense volumes of top-rated medium-term notes and asset-backed commercial paper, mainly to money-market funds. The idea was to profit from the arbitrage between the yields on the entities’ obligations and the higher returns on their longer-dated holdings.

Partridge-Hicks and Sossidis created the first such vehicle at Citigroup in the late 1980s, and started Gordian Knot in 1993. Sigma’s launch came in 1995, during a bull market for its targeted holdings.

By midyear 2007, some 30 SIVs had $352 billion of their paper in the hands of investors. But they collapsed in quick succession as market conditions cratered, with Sigma folding in October 2008 and bondholders suffering heavy losses.

Why do Partridge-Hicks and Sossidis believe now is the time to re-enter the market? They apparently are among a number of industry professionals who think a Feb. 9 U.S. Appeals Court ruling that rendered collateralized loan obligations exempt from the Dodd-Frank Act’s risk-retention rule could apply to all types of securitized products. “It was a watershed ruling. A game changer. It’s possible that any deal can be structured to get around risk retention rules. Even an SIV,” one source said.

That said, it was an inability to handle deteriorating asset values and liquidity troubles that sank the SIV market — and not Dodd-Frank. And European Union rules governing risk retention remain in place.

Partridge-Hicks and Sossidis have pursued a number of initiatives since shuttering Sigma. They explored the launch of a mortgage REIT, for example, and in 2016 dropped plans to create a U.K. commercial bank called First Global Trust Bank. Today, Gordian Knot’s primary business appears to consist of a vehicle called Theta Corp. that invests in credit derivatives.