As ABS grows, investor base shifts rather than expands
Speakers on a panel on day one of ABS East noted that the securitization market has seen a vast expansion in the number of issuers and kinds of assets that are coming to market, but crossover investment has mostly been seen from within the space, rather than from other corners of fixed income.
The most common crossovers, according to the speakers, are corporate investors playing in securitization asset classes that closely resemble the usual corporate debt issuance. These include things like whole business securitizations, and other corporate and commercial ABS, such as cell tower and wireless spectrum securitizations.
“What we have seen as these asset classes have grown, is increased participation [in corporate ABS], there but that makes sense because a lot of times these investors are already looking at the health of underlying business,” said Barclays managing director Benjamin Fernandez while on the panel. “I think we are more likely to see expansion in participation in asset classes where we corporate buyers already participating, rather than have corporate investors look at traditional securitizations.”
Andie Goh, vice president at Ares Management, agreed, noting that it makes sense for corporate buyers to play in assets, such as whole business, because they can leverage much of the same credit work they have already done in evaluating the health of a corporate parent entity that is issuing a securitization.
“In terms of asset classes, we also saw crossover from corporate investors in the Sprint Wireless spectrum, as well as a lot of inquiries from corporate buyers into Verizon’s first handset transaction,” added Nicky Dang, senior vice president at Moody’s.
But the idea that a whole new type of investor emerging from outside of those already seen in the market was met with some skepticism. This is partly because there are not many large asset managers out there that do not already have a dedicated securitized product strategy, and apart from some recent uptick in interest from funds and private equity, the market has a stable base of long time buyers.
More prevalent, Goh said, is the phenomenon of investors growing “vertically”, or having more flexible pools of capital that they can deploy up and down the capital stack.
The good news is that, while new investors aren’t necessarily flocking to ABS from all corners of the fixed income market, the speakers said that participants should expect securitization to take up a larger share of existing investors’ portfolios.
“You will see ABS take a greater share of insurance company capital,” Fernandez said. “In that space you are seeing a large amount of capital dedicated from the biggest managers, as well as combinations of private equity and hedge funds developing relationships with captive insurers and dedicating that money to structured products.”