ABS / CLO / Structured finance Questions

For some background, I work on a bank treasury/CIO trading desk covering securitized credit. We invest the bank’s excess deposits into structured products, focusing on the AAA through single-A part of the stack.

1) I find the work interesting since it allows me to cover a wide range of asset classes (CMBS, CLOs, ABS, Resi Credit) and not get pigeonholed into one. These markets generally move a lot slower than liquid markets (e.g., rates, Agency MBS, FX) and so the workflow may be slow at times. Day to day is spent looking at new issue deals, looking at dealer offer sheets, and monitoring current positions for any deterioration. Otherwise, I spend a lot of time trying to correct the analytics/risk on the book since, for example, a CMBS position may trade to a 2yr extension but the modeled analytics show an OAS only being run to maturity and thus way too high. Sell-side traders generally focus on one asset class whereas I get the chance to look at multiple. This gives a more holistic picture why some asset classes may be trading a certain way at a given point in time (e.g., there may be better relative value in ABS vs CLOs). 

2) My job is not as quantitative as it would be for a non-linear rates trader but more quantitative vs sell-side sales coverage. So depends on your frame of reference. There’s a lot of software out there that makes our job easier so we don’t necessarily have to build any models out from scratch, but we do have to sanity check the models and understand how they work.

3) If your business school has a Bloomberg terminal, you can roughly follow the market by searching for “NI CMBS”, “NI RMBS”, etc. There’s a community on Twitter as well that discusses structured finance, a little harder to find and less sexy than the old CBOE pit traders on there. Otherwise, take a fixed income or derivatives course if your school offers it and network.

4) There’s a lot of dispersion in terms of base pay unlike S&T or IB if we’re talking about buyside structured products trading. It depends on what kind of shop you’re at (e.g., insurance, asset manager, bank treasury/CIO). An1 base pay is generally from 100k-140k. Bonus is generally a higher % if your base is lower and a lower % if your base is higher. Turnover in these seats is a lot lower vs IB, so it may be more difficult to find an opening. Most desks don’t regularly hire large classes of analysts since a PM and one/two juniors can run a *very* large book (>$50bn).

5) Exits for buyside roles are similar to what you’d already be doing, maybe just more pay or a more prestigious seat. An example of an exit for a sell-side role is tranche investing at CLO manager (i.e., buying BB or equity tranches for a CLO manager’s captive fund). I’ve honestly seen less examples of sell-side traders moving to buyside roles since the base salary is usually a step down and there are fewer seats that focus on only one asset class like a sell-side trader would cover. In my experience, sell-side traders/sales hop from bank to bank and can get early promotes that way. There isn’t a recruiting cycle for buyside structured products trading roles that I’m aware of, since there’s just not as much turnover in buyside seats and the ability for a small team to run an enormous book. But otherwise, hedge funds, asset managers, insurance companies are your normal exits for any structured products trading seat.