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| Stephan Schumann |
Frankfurt-based Deka Investment is looking to put money to work in liquid triple-A asset and mortgage-backed securities. It is also looking to invest in equity tranches of collateralized loan obligations. "We've seen a spread widening in many parts of the liquid triple-A market caused by fast money pulling back from a couple unsecured corporate names; the contagion was largely unjustified, especially among high quality secured names," said Stephan Schumann, head of structured products. "There's a good case to be made for spread tightening by the summer, when new issuance tends to be especially low." Schumann is responsible for a team managing €4.5 billion in euro-denominated asset-backed securities and collateralized debt obligations, benchmarked against Euribor. The fund manager is especially keen on liquid triple-A rated prime residential mortgage-backed securities. "Nothing has changed with the credit fundamentals, Basel II hasn't been postponed. The good reasons for tight triple-A spreads are all still in place," noted Schumann. Spreads have widened in less liquid, lower-rated classes, but not by as much as they have in liquid names, causing a curve flattening--spreads on triple-B tranches of recent U.K. master trust deals came just five basis points wider at about 50bps over LIBOR.
Schumann declined to name specific deals he would be interested in but noted that since systematic risk across triple-A RMBS from different issuers and regions is very similar, he would be buying on the basis of headline yield.
Equity tranches of CLOs are also attractive. The fact that triple-A tranches on CLOs have not widened at all (the triple-A tranche of the recent Jubilee V transaction from Alcentra priced at record tights, for example, coming at 24 bps over), makes for a high internal rate of return on the equity investment, noted Schumann. He emphasized the importance of selecting an experienced CLO manager regardless of where you invest in the capital structure, as newer managers are having an increasingly hard time sourcing assets.
