While the top two U.S. cash CDO asset managers, in terms of outstanding liabilities, defended their territory for the three quarters ending June 30, an influx of new managers - particularly in the CLO space - are beginning to thin the market share enjoyed by those at the top, according to a recently released Standard and Poor's survey.
As of the end of June, 48% of the top 25 CDO managers did not move from their respective ranks by more than two spots, compared with their standings during S&P's last such study, which ended in the third quarter of 2005. While the 10 largest managers represented about 25% of all outstanding CDO liabilities in this survey, however, they had represented about 30% in S&P's previous evaluation. The top 33 managers also represented 50% of volume, compared with 28 managers responsible for half of the volume previously.
The rating agency ranks the managers based on U.S. cash CDO liabilities outstanding, taking into account all of the outstanding notes it has rated during the three quarter time period of each survey. S&P said it is considering including hybrid and synthetic deals in future surveys.
TCW Group (see Q&A p.1) continues to hold a strong lead as the number one CDO asset manager, with 41 outstanding deals totaling $26.7 billion in liabilities. Babson Capital Management came in second place with 33 CDOs under management totaling $12.6 billion. Both of these asset managers have held their respective number one and number two spots since at least year-end 2004. Bear Stearns Asset Management ranked third during the time period, with 10 CDOs under management totaling roughly $12 billion in liabilities. Bear Stearns rose to third place from 13th during S&P's last survey; the investment bank did not even rank among the top 25 as of year-end 2004. Duke Funding Management and Credit Suisse Alternative Capital rounded out fourth and fifth place, with 10 deals totaling $11.5 billion in liabilities and 22 deals totaling $11 billion in liabilities, respectively.
As a testament to the growing popularity of the CDO market, 34 first-time CDO managers entered the market between October 2005 and June 30 - double the number of first-time managers reported in S&P's last study, and amounting to 14% of all new-issue cash flow CDOs rated by the agency. However, while only 17 first-time CDO asset managers entered the market from January 2005 through Sept. 30, 2005, the new players also managed 14% of the new-issue cash flow CDOs during the time period. Fortis Investment Management led the newcomers, with three ABS CDOs totaling $2.38 billion. Seneca Capital Management had managed the second largest amount of liabilities, with a $1.6 billion ABS CDO. NIR Capital Management was close behind, with an ABS CDO totaling $1.5 billion. In fourth place, Structured Asset Investors was the only new CLO manager in the top five, with a CLO totaling $1.1 billion. New CLO managers did, however, represent half of all new entrants to the market during the three quarters, according to S&P.
The infiltration of new CDO asset managers has been a bit of a hot-button issue among more seasoned asset managers. Industry participants are careful to point out, however, that not all "new" CDO asset managers are new to the space; they may be spin-offs of larger shops or simply crossing to a new asset class. Harding Advisory, for example, which ranks as the seventh-largest CDO of ABS manager in S&P's latest survey, would have been considered a new asset manager when it set up shop in 2005 with a number of key staffers under Wing Chau from Maxim Group (ASR, 10/2/06).
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