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ABS East: Portfolio diversity strategies in their infancy

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Creating diverse portfolios of asset-backed securities has transformed recent investor strategies. But Michael Weisz, founder and president of Yieldstreet, believes the new opportunities — and new paths to build portfolios for clients — has only begun.

“I think we’re only in the second inning of where things have been changing over the last number of years,” said Weisz, whose four-year-old firm markets institutional-type investments in securitizations toward mass-affluent retail investors.

Weisz was on an opening day panel for the 25th annual ABS East industry conference in Miami on Sunday, sponsored by International Management Network and the Fixed Income Investor Network. The conference enters its second day on Monday, highlighted by a keynote address scheduled by Mohamed El-Erian, the chief economic advisor for Alliance Global Investors.

Weisz' panel on multi-asset/multi-strategy approaches to putting capital to work, focused on the growing number of choices investors have in asset classes and structural options. Many are also creating portfolios where diversity is taking greater shape, shielding clients from the travails of the market and the threat of recession.

“We’re seeing a lot of institutions that have been retaining assets on the balance sheet and going through and evaluating where they might have an over-concentration and pruning those assets,” said Andy Pollock, the senior relationship manager for mortgage insurance giant Radian Group. “At the same time where others are seeing... an opportunity to pick up these assets that are being put up for sale.”

Keeping with the baseball theme, Pollock noted the “strike zones” of opportunities that clients are targeting, such as GSE-eligible products, reperforming loans and even mortgage-servicing rights that are “also big for some people,” he said. Investors are increasingly wary of companies with “youthful,” inexperienced management without a track record through an economic cycle, he said.

Investors strategize to “never be siloed in one particular area. Also not being beholden to any one,” said Brian Herr, chief investment officer for Medalist partners. “Some of these more bespoke and esoteric markets I don’t think will continue to be more bespoke and esoteric on a go forward basis.”

Kevin Gibbons, a managing director at Amherst Pierpont Securities, said the increasing number of options for brokers is a result of the increased diversity of capital options for companies that package deals for the asset-backed market. Whereas large institutional investors in previous years “weren’t terribly interested” in deals “if you didn’t have something wrapped up in a 144A offering with two ratings on it,” those same buyers (particularly large insurers) will now plow into private securitizations or whole-loan sales to take advantage of the higher yields.

“So as opposed to going out and raising traditional private equity, [companies] will go to a fund and set up a separate vehicle; that fund will put in the equity and they’ll raise third party senior credit,” said Gibbons.

Lending Club senior vice president Valerie Kay said for her company to reach the volume levels it achieves — $10 billion to $12 billion annually in consumer loans — is because of the “various forms of liquidity” that institutional and nonbank investors provide, such as warehouse lines or ABS vehicles.

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