Interest in the riskiest portion of commercial mortgage bonds continues to increase on the back of investor quest for yield.
JP Morgan calculates that a total of 21 investors are active buyers of CMBS conduit B-piece today, up from 13 buyers of the most subordinate CMBS bonds in 2013.
“The prospect of double-digit returns in this market has spurred increasing interest from investors,” stated analysts in a report last week.
Hedge funds interest in the asset class is one reason investor participation continues to increase. According to JP Morgan, this year has seen new hedge funds enter the B-piece market that include Seer Capital (involved in 8 deals) and DoubleLine Capital (involved in 2 deals).
Hedge fund buyers that entered the market in 2013 have increased investments in 2014. Ellington Management, for example, was involved as a B-piece buyer on only 3 deals in 2013 but increased their involvement to 8 deals so far in 2014.
In the chart below, JP Morgan outlines who the CMBS B-piece buers are, by deal count and balance.