NEW YORK - The wave of new structured investment vehicles (SIVs) is shaping up, marked by last week's launch of Stanfield Victoria, the first SIV from Stanfield Global Strategies, which was formed when Stanfield Partners acquired Ceres Capital in January, furthered by an equity infusion from XL Capital.
At least two additional SIVs are slated to begin funding in the next few weeks, according to panelists at last week's ABCP conference hosted by Strategic Research Institute in New York (see story p. 1).
In total, four more vehicles are expected to launch before the end of the year, including, in the near term, Societe Generale's PACE, and ABN Amro's Tango, a joint venture with Citibank, sources said.
Also this year, a SIV from The Mizuho Corporate Bank (formerly IBJ International) called Seaside Finance, and one from Standard Chartered Bank are expected.
Growth brings concerns
It is anticipated that by yearend there will be 19 active SIVs total, seven of which will have launched in the last year (including General Re/West End Rathgar and Banc One's White Pines), meaning that the universe of SIVs will have increased more than 50% in a short matter of time. While investors generally welcome a broader SIV issuer base, as that allows for better pricing and tiering, the limited universe of collateral adds contagion risk, they said.
This risk has been loudly played out several times in the CDO market - most recently seen via a high concentration of WorldCom, which hurt several deals simultaneously. Like in the CDO market, limited disclosure is something investors are concerned about with SIVs. "With SIVs, all we really get is a snapshot of the seller's ratings," said one SIV investor. "Perhaps contagion risk isn't really a problem, but disclosure is."
At the conference, investors complained that SIV issuers have been "hiding" behind Regulation FD, which says that, in accordance with fair disclosure, companies must make the same information available to everyone at the same time.
Whether or not Regulation FD is a valid argument for publicly traded banks administering SIVs was a point of debate last week.
Though SIVs have yet to invest in credit derivatives, nearly all the active SIVs have expressed interest in buying derivatives, analysts said. This would allow the vehicles to gain exposure to credit when a cash position is not available. Apparently, the potential trend has raised questions from investors and issuers alike, as both agree that a synthetic position is far from indentical to a long position in a company. A panelist requested that one of the rating agencies hold a teleconference to discuss credit implications and rating approaches.
On a panel titled Setting up a SIV, Nik Khakee of Standard & Poor's said that not all SIVs have been approved for credit derivatives, though he agreed it's inevitable credit derivatives will become part of the SIV universe. The question to ask is, "To what extent does a credit derivative resemble an equivalent cash position?" Khakee said.
Some standout differences include liquidity and the ability to price mark the exposure. Also, a credit derivative not only implies a long position in the credit, but a long position in the counterparty.