Cherry picking is a practice where the originator of a securitisation transaction selects the best assets to securitise, and leaves the riskier assets behind. This can be done to make the securitisation look more attractive to investors, and to reduce the risk of the originator.
For example, an originator might securitise a pool of mortgage loans, but only select the loans that have the highest credit ratings. This would mean that the securitisation would be less risky, but it would also mean that the originator was transferring the risk of the riskier loans to the investors.
Cherry picking can be a problem because it can lead to investors being misled about the true risk of a securitisation. It can also lead to a concentration of risk in the financial system, as the riskier assets are not being spread out among different investors.