In what may not come as a huge surprise to market participants, large CDO managers in 2005 became even larger - with 28 collateral managers representing half of the U.S. CDO market in terms of outstanding liabilities by the third quarter of the year, according to Standard & Poor's. The 10 largest managers last year comprised almost 30% of the CDO market.
Conversely, in 2004, 35 managers made up 50% of the CDO market, with the 10 largest managers accounting for 25% of the market. The rating agency found three main trends among collateral manager participation in 2005: the largest CDO collateral managers increased market share; a higher number of new managers entered the space - particularly in the ABS CDO, CLO and commercial real estate CDO sectors; and the more established managers ventured into new asset types.
Overall, the largest CDO manager as of Sept. 30 was Los Angeles, CA-based Trust Company of the West, with $22 billion in assets under management. The manager, which led by a substantial margin, also took the number one spot for largest CDO of ABS manager, with $15.55 billion in assets under management. TCW recently told ASR it plans to keep growing - market permitting - with projections for total structured finance CDO assets under management this month at $23 billion (see ASR, 12/05/05).
S&P counted total U.S. CDO issuance through Sept. 30 at $132.9 billion, up 16% from the $111.6 billion in volume during all of 2004. The largest contributions to the growth in overall CDO issuance came from the ABS CDO and CLO markets, according to S&P. A little more than a third of the top 25 CDO managers across all asset types generally had consistent standings with year-end 2004 numbers.
Babson Capital Management came in at number two as the largest overall CDO manager as of Sept. 30. Babson had $12.53 billion in CDO assets under management. Duke Funding Management came in as the third largest overall CDO manager, with $10.45 billion in assets under management, followed by Credit Suisse Alternative Capital, with $9.97 billion and BlackRock Financial Management Inc., which came in at fifth place with $9.49 billion in CDO assets under management.
In addition, four managers that didn't make the top 25 in 2004 hit the big league by 3Q05. Bear Stearns Asset Management placed 13th, with $5.77 billion in liabilities; Aladdin Capital Management LLC made it up to 21st place with $4.28 billion in assets under management; Paramax Capital Group was close behind at 22nd place with $4.27 billion and Declaration Management and Research edged into the 24th place spot with $4.14 billion in assets under management.
Through the third quarter of last year, 15% of new CDO issuance was handled by managers either new to the CDO market or new to the asset type, according to S&P. A fair portion of the new managers, however, consisted of seasoned professionals that had branched off to start their own firms. Others, such as in the CRE CDO sector, were familiar with the collateral, but were for the first time drawn to the securitization structure as a form of matched-term financing.
Among the largest CDO of ABS managers through the third quarter of 2005 were, after TCW, Duke Funding Management LLC, rising eight spots from year-end 2004 to take second place with $10.45 billion in assets under management; Brightwater Capital Management, with $9 billion; BlackRock Financial Management, with $7.32 billion; and Vanderbilt Capital Advisors, in fifth place with $6.57 billion, according to S&P data.
Leading as the top CLO managers during the same time period were Credit Suisse Alternative Capital, in the lead with $6.51 billion; Sankaty Advisors, which rose from ninth place in 2004 to a second place finish as of the third quarter with $4.88 billion; Babson Capital Management, with $4.62 billion; Highland Capital Management with $4.52 billion and Ares Capital Management, rounding out the top five CLO managers with $3.94 billion.
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