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| Harvey Pitt |
Harvey Pitt, former chairman of the Securities and Exchange Commission, delivered both congratulation to the loan market for its rapid growth in recent years and a warning that litigation risk could increase as pension fund and retail investor involvement grows. "We may be seeing the retailization of commercial loans," he said in his keynote address at the Loan Syndication and Trading Association's ninth annual conference. "Even if the underlying is not a security, there should not be any question that the purchase of a mutual fund is not subject to the full panopoly of Federal laws." Pitt commented that the recent case of Forstmann Little & Co. versus the state of Connecticut's pension fund was also important, as public funds increasingly invest in the asset class. The $15 million that the case was settled for was just a sliver of what Connecticut was trying to recover, Pitt noted.
The theme of pension fund involvement and its consequences continued throughout the day, with Don Pollard, head of the syndicated loan group at Credit Suisse First Boston and chair of the LSTA, commenting that pension fund and endowments are being drawn to loans by the asset class' high sharpe ratio. One loan manager said that the pension funds are already major players in the loan market, but through structured vehicles. He believes there will be a gradual move from structured products to separate management, but institutional managers need to deal with ERISA and Qualified Institutional Buyer requirements first.
Pitt also touched on issues of public and private and the potential misuse of private information. "Not all Chinese walls have proven to be non-porous," he stated. A banker on a later panel stated that this is the biggest issue of concern in the loan market, citing credit default swap prices gapping out before bad news hits the market. But the overwhelming consensus was that the loan market will and should remain private and that there will be a refinement rather than an overhaul.
Comptroller's Office Notes Go-Go Days Must Not Return
