It goes without saying that structured products, particularly in the ABS space, are not the once attractive asset that had investors flocking to the sector.
And, with the continued stream of negative headlines, many firms are exiting the space altogether.
But, in every downturn, there is money to be made if you can find those assets with hidden value. Morgan Joseph & Co. is taking advantage of this dislocation. The firm announced a new analytics and trading group for structured products earlier this summer. It also announced the recent addition of two new senior members to the team, Michael Ice and Peeyush Varshney.
Ice joins as a managing director in the group from HSBC Bank where he was managing director and senior producing salesperson specializing in structured credit products. Varshney joins as a senior vice president. He was previously a vice president at Goldman Sachs in the structured credit, fixed-income currency and commodities division.
These additions follow several new hires to the group earlier this summer. In June, Morgan Joseph named Darren Wolberg and Dale Hoffman as managing directors and heads of the new structured products group, reporting to Matthew Stedman, managing director and head of sales.
Wolberg and Hoffman were both previously involved in the structured products group at BB&T Capital Markets. Wolberg was most recently managing director of the alternative spread products trading desk at BB&T. Hoffman was mainly responsible for trading and marketing CLOs and TruPS.
Also joining the group in June was Jay Bisarya, director of fixed income, primarily focused on marketing. Bisarya has worked with the structured credit groups at RBC Capital Markets, ABN Amro and Deutsche Bank.
The recent formation of a structured products team, and the senior hires that have followed, is primarily the result of the enormous amount of paper out in the market that needs to trade. There is now a level playing field between boutique firms (like Morgan Joseph) and the bulge bracket firms. Investors do need to buy and sell securities and the dealers' shrinking capital commitments, "leads us to believe that there would probably be a role for an intermediary who has highly skilled professionals with deep understandings of various parts of the structured products markets and with good modeling and analytic skills," Stedman said.
As for opportunity in the market, bid ask spreads still remain very wide but part of the CMBS curve is trading, the very top of the RMBS curve is trading and there are a number of bid lists with parts that are trading, Stedman said.
"Sellers tend to offer paper they know is priced too high and buyers are bidding where they know is a bit too low. But if you have a motivated buyer and seller you will do a trade," Stedman said.
Initially, the group is focused on trading CMBS, RMBS, CLOs and TruPS. But as spreads come back in and as the market begins to return in one-to-two years, the firm said it will begin to build a new-issue platform.
The group may also grow with a couple more additions, although that will be it for the time being, Stedman said.
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