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| Michael Karpik |
State Street Global Advisors' cash management group in London is looking to invest between €3-5 billion in asset-backed securities over the course of the next year, according to Michael Karpik. He heads a group that manages $75 billion in London and $390 billion globally, including a €7 billion-plus allocation to euro-denominated asset-backed securities. "We're aiming for a €10 billion exposure to ABS by the end of 2005 and need to take into account part of our current portfolio maturing," said Karpik, explaining the plan to increase its structured finance investments. The manager plans to expand the scope of its ABS investments by exploring new opportunities. These include non-conforming U.K. mortgages, residential mortgage-backed deals originated outside the U.K. and The Netherlands, monoline-insured structures and diversified commercial mortgage-backeds.
"We are looking at appropriate structures and collateral to expand our universe of acceptable credits as our fund continues to grow," explained Karpik, adding State Street will continue to focus on high-quality, diversified collateral with sound structures. The cash group recently bought its first non-conforming U.K. mortgage deal and is evaluating a Swedish RMBS deal currently being marketed.
The strategy marks a major shift for State Street's European cash management group, which since 2001 has invested exclusively in consumer receivable assets including credit cards, auto and student loans.
Karpik is also considering allocating a certain percentage to monoline-wrapped deals in a bid to diversify investments and get exposure to new structures. "We would treat the monoline insurer the same way we would treat any issuer, and cap our exposure to each approved monoline at an appropriate level," said Karpik, adding that he would not rely solely on the wrap but would evaluate the collateral carefully. The European cash group has yet to invest in its first monoline deal.
Well-diversified CMBS is another area Karpik is looking at, although European deals are not yet sufficiently diversified for him to take the plunge. "In CMBS, European deals are getting more diversified but are still not on a par with the U.S., where it's possible to get more than 100 separate borrowers," commented Karpik. "Diversification has improved a lot at the loan level, but not yet at the borrower level," he added.
The ABS assets managed by State Street's cash group are generally benchmarked against a calculated interest-rate index such as one-month EurIBOR.
