The news that Pacific Investment Management Co. (PIMCO) dropped out of the American Securitization Forum (ASF) highlights the growing discontent among securitization buyside members who feel they have no real voice within the organization.

The ASF has not returned requests for comment on the issue. A call to PIMCO for comment was not returned as of presstime.

Yesterday Bloomberg reported that PIMCO quit the ASF because the trade group did not represent industry buysiders as well as it did its banker and issuer members on the robosigning settlement agreement. 

However, industry sources said the $25 billion servicer settlement might not have been the only issue that prompted PIMCO to opt out of the ASF. The firm was headed toward leaving the securitization industry trade group anyway, even without the settlement.  

Investors Struggle to Be Heard

The root of the problem, buysiders have said, is that the ASF has not been an effective proponent of the different investor causes and interests.

"This has been a constant struggle for investors from the advent of the organization, about [ASF] being a voice for the buyside as opposed to it being a voice for the sellside and issuers, who get the benefit of saying that investors are a part of the organization as well," said one investor who is an ASF member.

The source said that over the few past years when many of the mortgage modification programs were drafted, ASF investor members were dead set against them, but would find themselves outvoted two to one by the banks and issuers each time.

"So when Congress or the Administration came out with some modification plan or rules that were detrimental to us, the ASF issuer and banker members would say they were all for it and we'd be outvoted," the source said. "The Administration would then come out and say that the ASF, a group that also represented investors, supported the action and the reality was we didn't."

One drawback, the source said, is that the investor side is less well organized than other parts of the market. 

Since it has been hard to get coordination among investors, the bankers and the policymakers understood this fact well so "they can jam stuff down our throats to benefit their other constituents," the investor source said.  

To address the growing discord, the ASF created an investor committee about three years ago. The buyside source said the group almost functioned as a separate silo to the organization so that investors would have a platform to voice opposition to certain rules that would prove detrimental to their investments.

The source said that the investor committee had drawn up a statement regarding its opposition to the $26 billion state AG settlement and the fact that, based on press reports, the costs of the agreement would essentially be borne by investors such as pensioners, mutual fund investors, 401K plans, as well as state and local governments. The ASF buysiders also wanted to highlight that they had not been granted a voice in the settlement proceedings.

But the ASF, according to the source, said that the other parts of the organization would not allow for the statement to be sent out. "We were told that we would have our own voice and it never got out," he said. "The reason is because the other groups shot it down given that it was adverse to their interests."

According to the source, the ASF would always note the fact that investor firms are part of the group. However, the association was merely, he said, touting investors' names without representing their concerns. For a list of ASF investor members, please click here.

Although the fact that PIMCO dropped out of the ASF altogether came as a surprise, the ASF buyside member said that it has also sent a very strong message. "It says that we are very frustrated," he stated. "How do we reconcile continued involvement if we have ideas and actions and the ASF is supposed to be our voice but we cannot get them to do it."

Another investor source confirmed the buyside's ongoing feud within the ASF and said that that PIMCO's ASF delegate, managing director Daniel Ivascyn, has not attended ASF conferences for three years.

"Investors know the ASF is big banks, its Wall Street," the source said. "PIMCO had enough, but there remains a big, gaping hole where an investors' trade group should be. They are unhappy with ASF, but the Association of Mortgage Investors doesn't really tick the boxes either. And the way the ASF split with [Securities Industry and Financial Markets Association (SIFMA)], that was weird and it seemed more about the personalities of those involved then what is in the best interest of members." 

The ASF member investor source said that the securitization buysiders are also constrained by the fact that it's an extremely competitive market with no real budget set aside to lobby their interests directly.

Sellside ASF members have a higher margin to work with and eventually fund most of the ASF moves. "Since they are the ones that are contributing most to the organization, they are the ones whose voice is going to be heard," he said. "From the investor side, collectively we may contribute a lot, but individually we don't."

Other investors said that their problems should be worked at in a more private forum where everyone can participate more actively.

"The legacy securitization topics are very complex and shouldn't be argued in public and via press releases," a source at an advisory company said. "As investors in securitized products, we need to all actively participate to make the future of the industry more transparent and incentivize all parties in the process of originating, structuring, rating, placing, servicing, and investing to be fully aligned and accountable."

In other parts of the securitization community, a banker source found PIMCO's actions to be somewhat counterproductive.

"If investors keep leaving a forum like the ASF, it's actually inviting government intervention because it seems like we can't come to an agreement within the industry without a third party," he said. "PIMCO could have written its own comment or otherwise gone to an investor forum like the SIFMA. This is very unconstructive when putting a new market together."


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