Loan investors were busier in 2002 than they were the previous year, but they did not get paid any more for their efforts. Average total compensation including bonus and salary for syndicated loan investors remained flat at about $530,000, while loan trading volume jumped 63%, according to a study of the U.S. fixed-income markets conducted by Greenwich Associates. But loan investors still did better than their traditional fixed-income counterparts (see chart, page 11) because the syndicated loan is more of a specialized product and its market requires more expertise, said Tim Sangston, a consultant at Greenwich Associates.
Syndicated loan trading volume jumped 63% from 2002 to 2003--a major jump when compared to fixed-income trading markets, where there were declines in trading volume for high-grade corporates, agencies, asset-backed securities and commercial mortgage-backed securities, according to Greenwich. So what? Trading more does not mean getting paid more. "We have been in a credit environment with many downgrades and many cases where investors have been losing money--pay in this market is based on performance, not linked to volumes," Sangston said.
Sangston attributed the growth in the loan trading market to increased sophistication among the banks and originators in getting loans off their books and in securitizing, as well as to advances in technology and growth of knowledge surrounding the product. "Banks are using the secondary market as a way of managing their loan portfolios," he explained.
There is also a disparity in growth between syndicated loan trading and the fixed-income market. Sangston said that even though syndicated loans are increasingly taking on characteristics of a fixed-income product, they still remain unique. "The syndicated loan is more of a unique product [than traditional fixed-income products] with a different cast of characters: boutique firms, hedge funds and smaller niche players who specialize in the leveraged community and do things on the inside," he stated. "This may explain why faster growth is seen in here than in other areas of the fixed income market."
Greenwich Associates has been doing its core fixed-income survey for 25 years, but only added research on syndicated loans three years ago when it saw that the secondary market for syndicated loans was becoming similar to the other markets, Sangston explained. In total, 65 syndicated loan investors were interviewed, 33 of whom were interviewed year over year (consecutively). Figures were independently generated by Greenwich Associates. They interviewed 1,500 accounts in the U.S. in the fixed income market.