PHOENIX – Insurance product securitization is leading the pack in new asset classes seen throughout late last year and early this year, noted panelists at last week’s Information Management Network ABS West 2005 opening panel discussion.
MBIA structured finance chief Mark Zucker reported that “triple-X [ABS] product inquiries have increased multifold,” driven primarily by increased cash reserve requirements placed on insurers. “MBIA has closed two triple-X deals this year and the pipeline for all monolines is full,” Zucker added.
Middle market loans, which have boomed in the CLO market lately, were seen as only increasing by Citigroup Global Markets co-head of origination Rob Malin. Hedge funds are becoming significant players in this sector, Malin added, raising funds to add liquidity for the sector. “This commodity has become money.”
Additionally, below investment-grade tranches of traditional ABS are becoming a niche market for a certain investor class, according to Malin.
But, panelists also cautioned not to be irrationally exuberant with every new asset and structure to enter the pipeline, in order to avoid the pitfalls of new assets introduced in the late 1990s. “Any new asset put out there will face investor skepticism,” said TIAA-CREF Managing Director Sanjeev Handa. What investors want to know is: “What really happens on the downside.”
Because of this more skeptical attitude, some buyside shops stipulate certain conduct from other participants in order for an investment. “TIAA won’t buy a deal unless the dealer agrees to mark the portfolio,” added TIAA-CREF’s Handa. “The increased transparency has helped both the primary and secondary [markets].”
“Investors, in their search for yield or relative value, must not forget the improvements made this decade,” Handa summed.
United Capital Markets President John Devaney noted the almost reckless attitude the buyside has shown of late. “Many who were fearful in the past, are no longer fearful.”
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