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Alternative Market Briefing

Leading indicators suggest an end to the securitized credit bull run

Tuesday, October 08, 2013

Bailey McCann, Opalesque New York:

A new report from eVestment shows that securitized credit opportunities may be losing ground with investors as the opportunity set dwindles. Credit investments saw a flood of investor assets in recent years, but now managers and investors are having a hard time finding new pockets of opportunity signaling that it may be the end of the line for this particular story. The report looks at the state of hedge fund investment in securitized credit markets, including ABS, MBS, CDOs, and other asset-backed securities.

Fears over rising interest rates may have triggered the recent negative asset flows in both the traditional and alternative credit sector, signaling a possible inflection point in one of the most profitable segments for fund managers over the last several years. Since the financial crisis, investors have allocated nearly $26bn to securitized credit strategies, including $3.9bn in 2013, and the universe has produced average annual returns in excess of 25% making it one of the greatest runs for both investors and managers the hedge fund industry has produced in its history.

So far, those returns have continued unabated although maintaining this run may be difficult. According to data in the report, securitized credit funds (6.93%) outperformed both the hedge fund aggregate (4.33%) and the Barclays Capital U.S. MBS (-2.38%) on an absolute basis year-to-date through August. Volatility in those strategies was also low ......................

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