Maxim Group, a structured products broker-dealer formed in 2002, is diversifying its business away from its core markets and into new areas, such as distressed emerging market trading, which have less commitment from the heavyweight banks. The long run of tightening in asset-backeds and collateralized debt obligations and the building up of established secondary desks by bulge bracket banks has left distressed securities few and far between.
"A lot of people have gotten into the space," said Armand Pastine, managing director and head of institutional fixed income in New York, referring to sub-class ABS and CDO trading. "We like to play in markets where there's a level playing field with respect to the resources of the firm," he added, explaining why the firm is branching out now.
Maxim plans to build up an agency trading business under Dorothy Paddock, who recently joined the firm, and is looking to hire agency salesmen well versed in the business. And it also hired two professionals from ICAP Securities--Frank Scerosky and Marino Mazzeo--to co-head an emerging markets distressed desk.
Pastine stressed Maxim remains committed to the structured products arena but noted the firm does not have the same size balance sheet as more established Wall Street firms, which limits its effectiveness as the space has become more crowded. "Two years ago, the toughest part was manufacturing the bid; now it's producing the bond," he said, in a reference to the scarcity of distressed structured products as prices have run up amid the benign credit backdrop. This has spurred more mainstream trading, particularly in senior classes, which has led both UBS and Credit Suisse First Boston to come out with reports on the growth of the secondary CDO market. At the same time, flows in distressed bonds have dissipated. "It's a prudent part of our business strategy to diversify revenue," Pastine noted.
To be sure, Maxim remains active in CDOs, as a manager: Its buy-side arm has acted as selected collateral for two Merrill Lynch-led vehicles, Jupiter I and Jupiter II, that have closed in recent months.
