Increasing liquidity in credit-default swaps on asset-backed securities has led to swelling volumes of synthetic ABS collateralized debt obligation issuance. Mark Brooks, portfolio manager at Credaris, said issuance has picked up dramatically in the last two months, and Michael Furtado, director at RBC Capital Markets in London, said about USD20 billion of synthetic ABS CDOs are in the pipeline for the rest of this year, compared with USD23 billion for all of last year.
The majority of synthetic ABS deals are managed, and the popularity of the product has drawn new and experienced managers. "All of a sudden, a manager becomes a market maker instead of a market taker," said Laura Schwartz, senior managing director at ACA Capital in New York. Conference attendees said the abundance of managers benefits the market by offering more choices, but it also means investors need to pay more attention to credit. Increased focus on credit picking enables managers to differentiate themselves.
