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GE to Offer Pure ABS/MBS Mutual Fund
Asset Backed Alert, Harrison Scott Publications Inc. (April 14, 2006)
GE Asset Management is a few months away from marketing an unusual mutual fund that will invest almost entirely in asset-backed and mortgage-backed securities.
The vehicle, GE Asset Management Structured Products Credit, is designed for institutional investors seeking to beat the performance of the Lehman Brothers Aggregate Bond Index without taking on additional risk.
GE has been running the fund internally for three years, posting an annualized return of 5.5% after fees, compared to the 4.2% that the Lehman bond index produced during the same period. ABS and MBS account for only about 5% of the holdings in the Lehman index.
GE's vehicle targets investment-grade asset-backed paper (mostly credit-card and auto-loan deals), residential MBS and commercial MBS. Few, if any, other mutual funds offer investors such pure structured-finance plays.
GE plans to start offering the vehicle to outside investors - mainly banks, insurance companies, pension funds, endowments and foundations - by the end of this summer. As part of its marketing blitz, GE will tout the mutual fund's value in helping to diversify fixed-income portfolios beyond the traditional unsecured-debt and U.S. Treasury bond markets.
"Investors want to learn more about this marketplace," said Paul Colonna, who heads a team of four portfolio managers and six analysts overseeing the structured-product fund. Colonna said he recognizes that the learning curve can be steep for newcomers trying to get familiar with the securitization business, and that GE incorporated a strong educational component into its marketing campaign for that reason.
The fund now has about $250 million of GE's own capital. Its growth potential is large, considering that nearly $1.5 trillion of new issues have poured into the ABS and MBS markets over the last year - largely a function of insatiable demand. GE itself has been a ravenous buyer. Its asset-management unit maintains a structured-product portfolio that hovers around $27 billion, most of which is in ABS and MBS.
While GE's mutual fund is unique, the company is sure to face stiff competition for investor dollars. Indeed, institutional investors have long been accessing the ABS and MBS markets through money managers, usually as small parts of their overall fixed-income strategies. Through its new mutual fund, GE is counting on attracting buyside players who want to focus more heavily on structured products.