U.K. Manager Sees Value In CMBS
M&G Investment Management is focusing on commercial mortgage-backed securities and whole business deals within the securitization area, according to Robert Marshall, director in fixed interest credit research in London.
M&G Investment Management is focusing on commercial mortgage-backed securities and whole business deals within the securitization area, according to Robert Marshall, director in fixed interest credit research in London. The team manages 9 billion in asset-backed securities, mainly in sterling and euros, and the portfolios are benchmarked against a variety of indices including the Merrill Lynch corporate indices.
Marshall said he favors CMBS because M&G has a particularly good understanding of the U.K. and European real estate markets and can leverage the insights of the firm's property team in assessing specific deals. "We prefer single-tenant transactions, especially when we're looking to get involved at the junior level," he commented, emphasizing the importance of getting a good grip on the tenant pool when investing in CMBS. "If we know a deal well, we can take risk further down the capital structure, whereas with multi-property transactions, which are harder to get a grasp on, we tend to stay higher up the capital structure." He noted there is not enough tiering between top quality and lower quality issuers and said he expects tiering to return when spreads widen out again, which makes it more important to be selective in CMBS investments now.
Whole business deals also offer interesting investment opportunities. "The sector has not been without its issues, but fixed-rate, long-dated sterling deals fit well with many of our funds' requirements," Marshall noted. Pub securitizations in particular are becoming more attractive again. "Six months ago there was insufficient pick-up between junior and senior paper, but spreads have been driven out by 30 to 40 basis points and now it makes sense to look at junior paper once more," he said.