Barclays Global Investors, which runs USD370 billion in fixed income globally, is planning to ramp up its participation in the structured finance bond market. The San Francisco-based buy-sider is prepping a long/short consumer credit fund for the fourth quarter and may even act as a manager on its first collateralized debt obligation according to DW sister publication BondWeek. As part of these initiatives, it has hired Hedi Katz, managing director in the credit products group at Fitch Ratings in New York. She will join BGI as a senior investment strategist in August and will relocate to the Bay Area.
Brian Zalaznick, managing director and head of global alternative fixed income at BGI, acknowledged it is surprising for an investor of BGI's size not to have managed a CDO. "It is shocking. We've had other strategic priorities but it's a high priority in the queue right now and Hedi's hire should be some indication of that," he said. It is also looking to increase its participation in the market as an investor; Zalaznick declined to quantify specifics or discuss any potential CDOs it might brings.
BGI is currently seeking investments in the long/short fund from institutional investors. The fund will buy pools of assets backed by consumer receivables such as home equities and will aim to be essentially neutral on a risk basis by combining investments across the capital structure in cash bonds with default protection in the nascent ABS default-swap market. Although the development of a credit derivatives market referenced to ABS certainly helps, Zalaznick stressed the fund is not being launched now because of a directional view on historically tight spreads. "We're trying to produce all these different alpha streams that are market neutral and we feel like we can take big views on pools of collateral," he said. He noted BGI started a long/short corporate credit fund about a year ago that is now USD700 million.
As for the CDO side, Zalaznick agreed the market has endured some growing pains with losses in the past but has proven itself to have longevity. "The development of the synthetic CDO and correlation markets, the ability to selectively issue classes instead of a full capital structure and ramp up quickly using synthetics...all play to some of the strengths we feel we have here," he noted.
BGI is also planning a sovereign long/short fixed income fund. Overall, it runs north of USD10 billion in long/short assets.
