Investors Dish On ABS Opportunities
Total Securitization - http://www.totalsecuritization.com
15 Jun 2011
Hugh Leask
Sanjeev Handa, managing director, TIAA-CREF, told Global ABS attendees that securitization presents "tremendous opportunities" for investors, but noted concern about the depth of demand for assets at Wednesday morning's "Investor Roundtable: Restoring The ABS Markets Into The Mainstream" panel.
TIAA-CREF continued buying asset-, residential- and commercial -backed securities throughout the downturn, according to Handa, who noted dislocation allowed investors to buy and hold bonds-without being subject to calls. "We're being rewarded because we did the analysis," he said, noting others bought simply because the assets were cheap.
Jeroen Bakker, portfolio manager at IMC Asset Management, set out a comparison between ABS and other sectors. "Look at government bonds compared to ABS. The difference was 45 basis points in the old days-it's now 180 basis points. There's a premium to be paid," he said.
IMC manages legacy ABS collateralized debt obligations, a sector Bakker said once offered 13-14% returns, but with leverage. "Nowadays you can offer these returns without any leverage," he said, pointing to European BBB spreads at 300 bps as another reason to be cheerful as a securitization investor. "There are opportunities for good returns."
Menno Van Den Elsaker, head of European ABS at APG Asset Management, said ABS continues to offer good relative value, but raised concerns about whether the investor pool can remain deep enough in the long-term. "Pension fund money is still not enough to replace the bank books," Van Den Elsaker said.
Solvency II provisions, which will place additional capital charges on pension funds' holdings of ABS, may remove pension fund buyers from the ABS buyer base. "This is a potential risk long-term. And Basel II is not helping banks invest," Den Elsaker said. "If the regulatory framework stays like this, we run the risk that we stay as a niche market with a few players. It's important to keep the bank books involved as well."
Handa noted some of the regulatory reforms are good, but said other rules of the road have become opaque. "At 300 pages long, we're losing sight of what we're trying to regulate," Handa said, referring to provisions in the U.S. Dodd-Frank Act.
Still, he welcomed the new qualified residential mortgage standard for the U.S. housing market. "If you want to sell to a government entity, it has to be a qualifying mortgage-it's a good thing," he said.
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