Structured Credit/Securitization — Which Desk? (RMBS, CMBS, ABS, Esoterics)
Hi! I'm an incoming Markets/S&T SA at a BB and beginning to think about which groups I'd like to be exposed to during my internship. I know I definitely want to do securitization; it's interesting, I'm somehow pretty passionate about it, and I think I have the skills for it. I'll be working in the Structuring/Origination/Banking side of the securitization process, but I'm not sure which group would be the best fit for my interests and goals. I'll list a few questions/observations down below — any help would be hugely appreciated! Thanks in advance.
- Which is the most dynamic asset? It seems like there's tons of analysis to be done with the real estate collateral exposures behind CMBS/RMBS, but on the esoteric/ABS side, I feel like the number of different securitizable assets (IP, royalties, franchises, etc.) could be interesting. I'm hoping to work somewhere that brings new types of deals and challenges so that the work doesn't get repetitive; is there one asset that's known for its monotony/dynamism?
- Hate to bring up the "exit opps" talk, but it's something weighing on my mind b/c I feel like I'm forgoing traditional IB exit opportunities with my interest in securitization. Ideally, I'd love to either stay at the firm (seems like it has a great culture), or move to some sort of AM/HF that structures their own illiquid SP investments. Are there any assets that are especially good for mobility between different types of firms/within a firm, or are they about equal?
- Are any assets going to undergo upheavals/growth in the next few years? I'm thinking that the market for ABS/esoterics will remain pretty consistent, but I know CRE has been struggling with WFH and I'm thinking that all these AMs buying out homes in cash for SFR will make RMBS activity decrease slightly over the next few years. Not sure if I'm predicting correctly, but would love to stay with an asset that has a stable market.
In short, I'm looking for dynamic and unique deals, flexibility/mobility between buy/sell-side, and a stable market over the next few years. If there's a non-SP desk that fits these too, I'd love to hear! Gotta have an open mind. Cheers
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Would consider ABS over CMBS and RMBS - if you want maximum optionality, it’s harder for an CMBS or RMBS person to lateral into ABS while an ABS person can always do either.
From an exit opps standpoint, alternative credit groups at Apollo, BX, KKR, Ares are comprised of largely ABS / former ABS people. Most fintech startups are consumer lending based, so would also hire from ABS for a cap markets person.
That being said, RMBS is the largest market and Americans won’t stop buying homes. It is stable but there are only so many ways you can iterate changes in a mortgage product. CMBS has some issues right now with tier 2/3 office assets but if you’re doing tier 1, you’ll be fine. ABS is probably the most diverse - I would just aim not to get pigeonholed into doing only autos, credit cards (but noting they are the fundamentals of ABS)
I actually disagree quite strongly on the lateralling point. What exactly makes ABS more complex than RMBS such that it's difficult to move form one to the other? Obviously there are differences between assets but the way you fundamentally model asset performance and liabilities is the same.
Don't disagree that ABS probably has more exit opportunities but again there are a lot of unique and interesting mortgages originators across Europe/UK that personally attracts me to Resi.
Fundamentally, the closest asset class in ABS to the traditional mortgage is solar given the nature of the long dated assets - other than that, you’re on your own on learning how to model / structure various ABS collateral / transactions - from autos to cell tower to IP to music to PDP, etc.
It’s true that mortgages have a lot of flavors but from my personal experience, I have very rarely seen a mortgage banker move to a non-mortgage related role afterwards. But if it’s a compelling asset class to you, you should 100% pursue it, and would not challenge you on that, YMMV
In the same pants as op here. Quick question: which desk would give me the best shot at a good banking group, so I can try to shoot for MF PE from here?
Thank you very much for this insightful reply.
I have a question about lateralling from a rating agency (top 3). How easy it is to move to the buyside having a rating agency background?
Many thanks.
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T
As far as being dynamic, Esoteric ABS tends to fit. Assuming the team gets many left leads and is fairly innovative, you'll get exposure to diverse assets, while also potentially being able to develop the process for new asset classes (E.g. Fiber ABS has been a recent innovation in the space). Esoteric also encompasses a very broad range of deals. As far as buy side, you're limited to securitization related roles. All things being equal, the more complex the asset you work with, the more opportunities open up. That said, if you want buyside, it may be better to be a structurer then a banker. Also worth mentioning, all ABS products are ~80% the same, so just being on any team will at least give you a basis. As far as any upheavals, the economy really depends on securitized products broadly. They may go through cycles, but they won't go away. They'll just evolve
How do people take out an ABS loan on a random asset like IP if it doesn’t cash flow? Wouldn’t stuff need to cash flow to be able to lend on it?
Also why would someone take out a loan on these assets to begin with compared to other avenues of monetization?
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IMO esoterics and CLO’s/bank loan warehousing are the in-demand asset classes at this moment.
Why?
Debt generally has inelastic demand, especially for risker MM firms, hence sponsors borrow from PC funds. PC funds like to offload risk, this entails CLOs. CLO market is usually resilient for this reason, 07-09 were actually pretty good years for CLOs.
CLOs. They are growing fast, alot of demand, interesting work.
How do these products work and why are they growing
Would you choose CLO over RMBS? How would the exits compare in those 2?
Anyone knows the exit opportunities for a rating agency analyst with ABS and RMBS experience ?
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