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| Sanjeev Handa |
Sanjeev Handa is a managing director and head of more than $9 billion in asset-backed investments at TIAA-CREF in New York. Handa, who joined Teachers as a corporate bond analyst in 1988, has also worked in the emerging markets and ABS private placement groups. He recently took over management of the public ABS group from John Cerra , who is now in charge of broader areas within Teachers.
How is the ABS group at Teachers set up and what is your portfolio like?
We have about 11 people reporting to me. We buy everything from triple-A down to below investment grade, and we go short, long, etc. We invested about $2.5 billion last year, a little more than we have in previous years. So, we're in the market. The structured finance area has issued two ABS CDOs and we're thinking about a third.
What innovations do you expect to see this year?
A lot of it depends on the economy. Many of the non-traditional asset classes ran into some difficulties over the last couple years. On a market-value basis, we hear where these bonds are being traded and people have taken some pain on some of these non-traditional assets. It's natural that people would go back to the basics, because those things didn't perform poorly. That's why you are seeing a lot of resistance to new assets, and a lot of these new assets are now being wrapped and put into conduits.
We're realizing that the ABS world may have been a little spoiled over the last 10 or 12 years, and as the market turns around and people begin looking for yield again, you'll see people looking at new assets again. However, I think all the advancements will be incremental, and we continue to see changes that will enable people who may not have been able to buy certain securities to buy them. For instance, the collateralized debt obligation world saw the development of money market classes.
Structured finance CDOs have provided a consistent buying base for ABS collateral. How has this affected the underlying market and how will it continue to play a role in pricing levels, the secondary market and what kind of assets are sold?
We've seen spreads dramatically tighten at the end of last year, apparently because there are lot of ABS CDOs in the pipeline. In the end, it's going to be unsustainable because people will realize they are paying too much and the CDOs have to maintain an arbitrage. At some point, the issuer is not going to be able to pay everyone in the liability structure. In a perfect market, spreads will come down to where no one's making any money. I think ABS CDOs are driving a lot of demand.
Do expectations that home equity issuance will drop this year create a positive technical situation?
If the bonds continue to perform and there's less issuance, it's a good thing for the people who hold the bonds and you'll see spreads continue to tighten. But if the bonds don't perform or there's a deterioration of the economy, then the isolated positive technical situation won't overcome that. That's what makes our job interesting, to evaluate different factors.
What can investors do to mitigate servicer risk--after all, isn't this market supposed to be immune to problems at the corporate level?
We're a credit shop here at Teachers. I was a corporate credit analyst many years ago. If you look at difficulties in ABS, a lot have been servicer-related. So, we do our homework when it comes to securities where we feel there's a lot of servicer risk. We've always gone out and visited the people we lend money to. That's something we will continue to do. If you look at some of the bigger blowups, we were able to avoid or get out of these positions. A lot of people may over-rely on ratings. And just because you go and visit a company and do your due diligence, that doesn't mean you won't make a bad investment. There have been many securities that were rated triple-A that we sold because we were uncomfortable with the risk being offered to us. I don't mean to imply we've never made a wrong call, because we have, but the key is to stick to your investment discipline.