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SALT Conference 2015 – Market Metamorphosis: The Evolution of Credit Strategies in a Shifting Market
Hosted by State Street Corporation
George E. Sullivan (Moderator)
Executive Vice President & Global Head of Alternative Investment Solutions, State Street Corporation
Chief Executive Officer & Chief Investment Officer, Prosiris Capital Management
Founder & Managing Partner, Metacapital Management
Principal & Co-Founder, Waterfall Asset Management
Head of Commercial Mortgage Securities & Trading and Senior Managing Director, Cerberus Capital Management, L.P.
Managing Principal & Chief Executive Officer, Seer Capital Management
Notes from the SALT Conference 2015 Panel IV- Market Metamorphosis: The Evolution of Credit Strategies in a Shifting Market
Jack Ross – Structured credit space
Unemployment and consumer defaults is very highly correlated
Rating agency definition – 40% of the asset backed market below market grade – precludes a ton of
Investors from investing in this market
Reza Ali – Near the top of the credit market
The long only carry trade is dead, and deadly to invest in
Applying hedges to their credit bets
Looking for asymmetric opportunities
Their fund is staying in the legacy CMBS space
CLO space is interesting and many investors have written off the space completely several times
Liability part of the capital structure, BB rated – get a kicker if rates go up
Scott Stelzer – huge run up in real estate prices is NOT sustainable
dislocation in real estate in the bakken, with energy debacle
CMBS market is a real opportunity right now
can short or hedge out easier than RMBS, with synthetics
Philip Weingord – early stages of commercial real estate markets
Securitized market is close to 3 trillion
Hedge funds that focus in our space is about 65B, with leverage maybe 100b –so still a very small role vs the size of the overall market
Looking at mezzanine and subordinated tranches
CMBS pieces selling at 8% vs pre crisis at 2%
Pretty big distressed tranche of bonds
Wall street firms are contributing about one third to this market vs what they used to do
Liquidity is more than efficient right now — but what will happen to liquidity in any sort of downturn
Banks used to be shock absorbers, but they are no longer involved
Liquidity is always OK in a good market…
Deepak Narula – risk appetite for wall street is incredibly low
regulation has caused banks to bank away
investors stepping up to buy loans at large discount
commercial mortgage and loan side is a 10-15 year cycle – typical loan is 10 years with a balloon payment
At the end
These loans are coming due from 2005 – 1.7T in loan maturities coming
Where banks and wall street can’t play – loan market — they cannot buy the loans
The risk and liquidity is held by the buy-side, no longer the banks
The GSE’s are parceling out risk differently than they used too
Asking private investors to take on some of the risk
