SPRINGFIELD, Mass. Babson Capital Management LLC, MassMutual Financial Groups alternatives fixed-income focused money management subsidiary, is drawing increased investor interest, as recent volatility has widened credit market spreads.
Despite the historic volatility roiling sections of the fixed-income market, Babson executives are seeing opportunities, more now than ever, said Thomas Finke, president, in a recent interview.
Sophisticated institutional investors, meanwhile, are becoming more interested in the types of strategies Springfield-based Babson offers, including leveraged loans, and the firm is poised to increase our discussions with investment consultants, he said.
That would reverse what several consultants called the low profile Babson Capital has kept since 2006, when the firm transferred $5 billion in long-only equity assets and 15 investment professionals to sister company OFI Institutional Asset Management, making a final break with the firms growth equity past to focus on fixed income.
On March 31, at the end of a quarter that saw more money managers losing assets than gaining them, Babson was managing $108.5 billion, up from $104 billion at the end of 2007 and $95 billion at the end of 2006. (Parent company MassMutual remains Babsons biggest client, accounting for roughly two-thirds of the firms assets.)
Babsons gain in assets under management has come despite a period of unprecedented stress for fixed-income markets, and a focus on some asset classes that have been at, or near, ground zero of that turbulence.
As of March 31, for example, Babson had $22 billion of collateralized debt or loan obligations, with billions more in other leveraged loan strategies and structured products. The firm also looks after more than $10 billion each in collateralized mortgage obligations and commercial mortgage loans, just less than $10 billion in mortgage- and asset-backed securities and another $7.5 billion in commercial mortgage-backed securities and residentials.
Amid the litany of woes fixed-income players have struggled with since last summer, weve done well, helped by the fact that Babson isnt overconcentrated in any one market, said Mr. Finke.
CDO and CLO in particular have become four-letter words, but the difficulties they face as well as their outlook depend on their structure and the asset class involved, Mr. Finke said. All of Babsons $16 billion of CLOs are cash flow CLOs, which rely on the cash flow generated from an underlying pool of leveraged loans. As such, performance is affected by the still-low level of defaults and losses in that pool, rather than near-term mark-to-market volatility, he said. We feel very comfortable with the quality of the underlying assets.
More aggressive structured products, which relied on leverage upon leverage, will go away, but a lot of the structures that did contribute to the efficient flow of capital will persist, Mr. Finke said.
Forced selling resulting from the past years market turmoil has presented attractive opportunities for experienced players such as Babson, which closed on a new $500 million CLO during the first quarter, as well as taking over management of an existing $680 million CLO, he said.
As of March 31, MassMutuals general investment funds accounted for roughly two-thirds of Babsons client money. According to Babson data, the firm managed $6.7 billion for institutional clients, with another $12.3 billion of subadvised accounts and $16.8 billion in commingled vehicles.
A number of inve stment consultants say they havent had much contact with Babson Capital in recent years, but Mr. Finke said that impression is partly the result of the decision to transfer to OFI its long-only business, where much of the firms contact with consultants had been focused.
Contact Douglas Appell at [email protected]