GE Asset Management will step up the marketing of its $250 million structured products strategy in September, when it reaches a three-year track record. Structured products offer yields above those of corporate bonds, but with lower default rates, said Paul Colonna, head of total return portfolio management. For instance, five-year BBB corporate bonds on average trade at 75 basis points over Treasuries, whereas BBB structured products can trade at 80-120 basis points over Treasuries. Last year the strategy returned 3.51% net of fees, versus 2.43% for the Lehman Brothers Aggregate Bond Index. GE invests in asset-backed securities and residential and commercial mortgage-backed securities. The strategy has an average rating of A.
GE is touting structured products as a way to help pension funds beat the Lehman Aggregate, which according to Colonna hasn’t kept up with trends in issuance. CMBS and ABS only make up 5% of the Lehman Aggregate, he explained. He declined to disclose asset gathering targets, but said capacity isn’t limited because of the huge size of the market. The issuance of asset-backed securities exceeded $800 billion last year, “so it’s no longer a niche strategy.” Few managers offer this type of standalone strategy and there has been a lot of interest from investors seeking returns. There is a steep learning curve and GE is having several one-on-one conversations with clients and prospects to get them up to speed. Fees for a separate account are 30 basis points for the first $50 million and 25 basis points on the next $50 million. GE manages $27 billion in structured products in a variety of strategies, such as enhanced cash.