Distressed debt: ABS buyers worry there could be worse to come
"It is a lot more difficult to raise money than people think"
When Blackrock Group agreed to buy $15 billion in mortgage assets from UBS in May this year, the move was seen as an indication of the depth of appetite among distressed funds for ABS assets. With some assets now discounted by as much as 30%, it is not surprising that hedge funds and sovereign wealth funds are moving in. But the perception that there is a large pool of money ready and waiting to mop up distressed ABS assets was roundly dismissed by several fund managers at the recent Global ABS conference in Cannes. Indeed, Blackrock’s acquisition of the UBS portfolio had to be funded by the seller itself to the tune of a $11.25 billion loan. "It is a lot more difficult to raise money than people think," reveals Jim Galowski, portfolio manager at Stonetower Capital. "A lot of money is not smart money." Bryan Chandler at Amherst Securities agrees. "There isn’t enough new money. The sell side can reach billions and there just isn’t enough demand."
The ABS market seems to have benefited to some degree from the huge volumes of money raised to target distressed loans. Some asset managers who have been disappointed by the trading levels in the loan market have found that bond assets are more discounted and have therefore diverted funds to this market.