04/30/2010

State Street Bids Trigger Buyside Buzz

Investors are chattering about an apparent resurrection of State Street Global's buyside presence.

The Boston firm showed interest in a $1.1 billion auto-loan deal that Ford priced April 21. And it sniffed around a $350 million securitization of dealer-floorplan loans that Ally Bank completed two days later.

By looking at the offerings, State Street has stoked speculation that it is growing more bullish on asset-backed bonds after retreating from such products amid the global financial crisis. The thought is that the company is bidding via its U.S. Asset Backed Index Strategy, a collection of accounts that seek to mimic the Barclays Capital Asset-Backed Securities Index.

Of course, plenty of other investors have warmed up to asset-backed bonds lately. So why is State Street getting so much attention? Its vehicles also offer securities-lending services - placing them among a class of once-active buyside operations whose return is seen as crucial to the market's recovery.

Securities lenders, including asset managers like State Street and pension systems like Calpers and Ohio Public Employees, see the operations as a way to build up pools of low-risk investments that they can milk for additional returns by loaning them out for use in repurchase agreements. State Street was holding some $32 billion of asset-backed bonds in early 2007, just before it stepped back from the market.

The Ford and Ally deals appear to fit State Street's former profile as a conservative investor in mainstream transactions. Other buyers, meanwhile, see a downside to the company's presence: Overall demand is already growing faster than issuance volume, creating increased competition to get in on new deals.

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