Allison Taylor, executive director of the Loan Syndications and Trading Association, put two former board members on the spot during a distressed trading panel at last week's LSTA conference, asking them why their institutions were not members of the trade association. The two buysiders, Chris Pucillo, portfolio manager at Stanfield Capital Partners, and Victor Khosla, chairman and ceo ofStrategic Value Partners, had been members of the sell-side during their time of board membership.
Taylor noted that there were two reasons why it was important that all loan market players be a part of the loan market association. One of the reasons is money. "We are a non-profit organization and we need their money," she said, explaining how the LSTA has grown over the last couple of years and needs the continued support of the market to continue to pursue its initiatives. The other reason is to ensure that everyone be a part of the consensus building process. If hedge funds and vulture funds do not come to the table, then the rest of the market can make decisions that go against their wishes, she said, noting the LSTA had no hedge fund membership.
Pucillo noted that existing members of the LSTA--the banks and dealers--are the ones who have to drive the process. "It's the existing members who are going to have to say you must trade with standardized documents," he said, declining to comment further on matter. Khosla did not return calls.
On the subject of fees, Taylor speculated that some institutions held back because the membership fees would have to come directly out of pocket for a lot of the funds, which are made up of partners. "They look at the market and say 'Oh, the sell-side will pay'," she said. One buysider agreed, noting that the larger firms had an easier time funding LSTA membership fees.
Taylor said competitive pressures from other pricing services are forcing the LSTA to move away from receiving revenue from its mark-to-market service to a membership fee-based revenue system. Due to the reduction in mark-to-market royalties, the LSTA is projecting negative net income of $121 million for 2002 and an estimated loss of $668 million for 2003. Taylor said the association has made a huge step toward that end by substantially raising membership dues and moving towards becoming a trade association much like the Bond Market Association. The fees are structured such that larger players put up the most cash. "It's going to be a year of change for us," she added.