While traditional institutional investors still purchase the bulk of asset-backed securities, one segment of the investing community has maintained a healthy appetite for privately marketed ABS, according to a recent survey by ASR sister publication Private Placement Letter. Given the level of investment by this group over the last two years, evidence suggests the ABS market may have a growing audience to discreetly market deals towards.
Last year, private market investors forked over $2 billion into privately placed asset-backed securities, according to PPL's recently published Annual Buyside Survey. Looking back, this same group purchased just over $3 billion in asset-backed investments in 2002.
While appetite was down over the last two years, it certainly had not halted, and the statistics are made all the more interesting by the fact that the survey focused entirely on life insurance companies - a group generally regarded as not often seeking out risky ventures. This billion-dollar plus appetite for securitization deals indicates a growing acceptance by more mainstream institutions to put their money to work in the ABS market.
Privately placed ABS deals are extremely hard to identify as they tend to be offered directly to a select group of investors, as opposed to the more open solicitation commonly seen with syndicated auto loan, credit card and CMBS/RMBS securitizations.
However, life-insurance investors seek out longer-term maturities in order to match liabilities on the other side of the balance sheet. Therefore, sources say this select investment audience is not participating in short term tranches. And this select group of investors are not inclined to purchase as far down in the credit spectrum as institutional investors; sources noted they usually buy into highly rated tranches. Some specifically choose wrapped portions of an ABS deal over unwrapped ones, sometimes driven by constraints on their portfolio. Overall, these investors favor mortgage-backed or CBO/CLO investments, as reflected in the latest batch of information from the survey.
The results of the survey show the appetite for privately placed mortgage-backed deals spiked in 2003, as $730 million was purchased last year compared to $457.7 in 2002. The level of investing in the CBO/CLO area remained steady, with $937 million invested in 2003 and $842.8 million reported in 2002.
In all, the survey found that of the insurers' total investment portfolios, asset-backed securities comprised 5.69% in 2003, down from 9.03% that was reported in 2002. Traditional privately placed senior note deals still comprised the majority of their portfolios, as well as 144a securities, with some lease-backed, equity-linked, mezzanine and project finance in the mix.
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