Global credit funds & CLO's
August 2020 | Issue 226
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August 2020 | Issue 226
News
Hayfin broadens scope of structured credit business
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Sayed Kadiri
Editor
Hayfin Capital Management’s new-look structured credit team in New York is taking its existing CLO-centric platform and diversifying it to include CMBS, RMBS and other forms of ABS, say officials at the firm. This multi-asset approach has delivered early success with Hayfin set to close a large separately managed account for the strategy. It is also understood to be launching a closed-end fund with a similar asset composition.
Hayfin hired Jordan Milman, co-founder of LibreMax Capital, as global head of structured products, and former Deutsche Bank global head of structured products trading John Hanisch as a portfolio manager. Milman says that the coronavirus-induced sell-off has underlined the importance of using a broad mandate for investing in structured credit, as well as having an appropriate asset-liability liquidity match.
“The crisis affected all markets, but the impact on structured products was exacerbated by leverage and liquidity,” says Milman. “We’ve had relatively stable markets for the last decade, and stability begets management styles and structures that are not always suited to volatile markets.”
He says that Hayfin plans on using lock-up vehicles for its strategies and that institutional investors have been in favour of its multi-asset approach, having been inundated with single-strategy proposals since the sell-off in March.
Broadening its structured credit unit will not be at the expense of CLOs. Milman says that Hayfin stress-tests CLO double Bs using scenarios that resemble default curves of previous recessions and is still able to find bonds that return 100% of principal.
Over-collateralisation test failures have affected 21% of US CLOs this year, according to CLO-i, but Hanisch says this hasn’t fully been priced in. “The basis between piking and non-piking CLO tranches is not as big as you would expect,” he says. “Right now, downgrades imply higher default rates and, if that materialises, we will see a bigger basis between those bonds.”
Milman says that personal balance sheet prioritisation is going to be a big theme once stimulus measures roll off. “There may be a disconnect between expectations of temporary versus permanent employment. This may lead to differences in performance across unsecured loans, auto loans, rent payments and mortgages. Our analysis is taking this into consideration.”
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“The impact on structured products was exacerbated by leverage and liquidity”
Jordan Milman, Global head of structured products | Hayfin Capital Management
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