Eight members of Van Kampen Investment's leveraged loan team have left to start their own firm, catching the wave of professionals who have made the same move in the past few months. Since the beginning of 2005, a number of new firms have opened for business, including Apidos Capital Management headed by Gretchen Bergstresser; Kinglsand Capital, started in February by Joyce DeLucca and a team from Katonah Capital; and Silvermine Capital Management, formed in March by Rich Kurth and Steve Kalin from Trust Company of the West. Additionally, the market is also seeing established collateralized debt obligation groups moving into the loan business.
"CLOs are so hot they are flying off the shelf," said Ifitkhar U. Hyder, managing director in XL Capital Assurance's Structured Investment Products group, at the Strategic Research Institute's Loan Market & Syndication Summit in New York last week. Last year, $30 billion of CLOs were issued and year-to-date issuance has been $20 billion, according to Douglas Lucas, a director in UBS' CDO research group. He added that the pipeline is extremely strong, the debt tranches are typically oversubscribed and issuance could exceed last year's total. All this demand is reflected in the average pricing on the liabilities. He noted that the AAA liabilities are pricing within the range of 23-25 and the AA at 38-42. Indeed, the biggest constraint to more issuance is the supply of suitable collateral.
Howard Tiffen, managing director and director of senior loans at Van Kampen, said when he started in the business there were probably about seven institutional investors and today there are close to 200, many of which are small, focused boutiques. Kurth of Silvermine said the expansion in the number of managers is driven mainly by the fact that the asset class has proven itself over the last credit cycle. Within the maturation of the asset class, he would expect growth in the number of loan managers from approximately 175 par managers today as compared to probably 350-400 high yield managers and over 1,000 ABS managers. Further growth than has been experienced would not be disproportionate with other asset classes, he said.
There are suggestions that investors in the liabilities are not differentiating between the newer and more established managers, but Kurth responded. "I can't speak for investors, but when you look at Gretchen's shop, Silvermine and Kingsland, we are all three experienced managers operating under different shingles," he said. "At the end of the day, returns are generated by the team's investment decisions, not the name on the door."
At Van Kampen, four members on the portfolio side and four on the administrative side left last week. Brad Langs, Douglas Winchell, Michael Starshak and Blaine Reed were on the portfolio side. The group is expected to start a new fund, although the timing of that move is unknown. No member of the group could be reached for comment.
"We're really sorry to lose them," said Tiffen. "I really wish it hadn't happened but I do understand how attractive it is to start a new business." Van Kampen is in the process of reviewing candidates and Tiffen said the group has already made some offers. He expects to have some new employees next week, but it should be about a month before the team is completely rounded out. He has been speaking with people internally at Van Kampen and at Morgan Stanley Investment Management, as well as externally.
