Fixed income managers express their love for real estate debt

It might be expected that a niche fixed income fund manager will say his asset class is full of promise, but in the case of property debt one prominent specialist fund manager has been joined by a growing number of diversified fixed income managers in his enthusiasm.

Diversified fixed income managers who can pick their favourite pockets of a very wide complex are naming instruments backed by property as among their favourite long positions.

This is possibly the mirror image of their views on the class back in 2008.

But now, the managers note the assets are attractive both in their own right, and given the death of yield in mainstream fixed income.

Yields on real estate debt has proven less affected by central banks’ various stimuli than debt and credit.

As new entrants come looking at securities backed by residential and commercial property mortgages (RMBS and CMBS), specialists in the arena argue gains are still to be made.

The enthusiasm of diversified managers is clear.

Richard Ford, European head of fixed income at Morgan Stanley Investment Management, said recently US non-agency mortgages top his team’s conviction list, and his company is considering launching a US MBS strategy, comprising about 50% non-agency MBS and 50% traditional instruments.

Tim Haywood (pictured), head of GAM’s $14bn fixed income unit, made money shorting US RMBS between 2006 and 2008, but says he is raking the same market now for long ideas.

Diversified property fund investor AEW Europe is involved in real estate debt via a European loan fund it launched in July, and CIO Rob Wilkinson says the emergence of property debt is “potentially the most significant thing to impact on the real estate investment business since comingled funds in the mid-1990s.

“We see huge opportunities in real estate debt as capital evaporates within the banking market, and pensions and insurers are becoming more interested in being alternative real estate financiers,” he says, adding between €400bn and €1trn of real estate debt in Europe alone will soon need refinancing.

The market could receive a further boost via a European Central Bank initiative, the European DatWarehouse launched last month [NOV] to provide for loan-by-loan information accessible by asset-backed securities market participants.



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