Investors at the ABS East conference said regulators are doing right by the industry in demanding increased transparency and reporting in the asset-backed securitization market, a move they say will put the market’s future on more solid footing. “Being against transparency is a little like being against Santa Claus,” said John Kerschner, head of securitized products at Janus Capital, at the morning session Piercing The Veil: Investors Speak Out On Transparency And Reporting.
He and others investors said the need for more data points for the entire ABS sector will be a good start, and also called for more transparency on servicers and ratings agencies. “As a quant, I always want to push for more data and disclosure,” said Dapeng Hu, managing director at BlackRock.
Kerschner added that it takes more than a good story to sell bonds in today’s market. “I think a lot of investors in this area feel we were misled. [Now] we want to hear the story, obviously, but it's not enough,” he said.
For TIAA-CREF’s Director Youriy Koudinov, the key question will be tackling the lack of pricing transparency on bonds from dealers. “The bid/ask spread is wide and there is a lack of incentive [from the desks] to disclose pricing color,” he said.
But the biggest endorsement for stiffer disclosure rules came from panelist Uri Ron, senior v.p. at Pacific Investment Management Company, saying the bond giant is fully backing the U.S. Securities and Exchange Commission’s initiative on Regulation AB reforms, particularly as it relates to increased document disclosure on new-issuance.
He likes the version of Reg AB reforms that call for a public posting of a deal’s governing and operating documents within five business days prior to a bond sale, among other public filings. Ron also favors requiring issuers to disclose the same level of information under 144a private transactions as public offerings.
Kerschner stepped back in to say he avoids deals that lack more than one rating. “There are deals I will just walk away from because I can't get comfortable with the story alone,” he said. That was followed by a criticism of Standard & Poor’s handing of the pulled Goldman Sachs and Citigroup commercial mortgage-backed securitization this summer. “Things like that cause investors to wonder what is going on,” he said. “I think S&P should have done more damage control.”
To that, Ted Burbage, managing director at S&P, said while the timing was unfortunate, the agency’s willingness to “shut down the machinery” on the GS/Citi deal when a modeling error was discovered was proof that it had implemented good checks and balances in the past three years. “We didn't hide behind a curtain,” he said.