Rajat Rohailla, executive director at Molton Street Capital, answers SCI's questions

Q: How and when did Molton Street become involved in the structured finance markets?
A: We are a young firm, but all of our backgrounds are in trading, securitisation and risk management. We have been focused on structured finance since our inception and the firm brings together deep structured credit experience.

Personally, I qualified as a chartered accountant and moved into the market in 2004. From there, I moved into investment banking and had a number of roles before joining Molton Street Capital in 2012.

Q: What are your key areas of focus today?
A: Our business largely breaks down into a trading side and an advisory side. When we started in the market, we wanted to set up a securities boutique and our success has been built on that trading side of the business.

2014 has been a bit challenging as compared to previous years, due to yield compression. Our client base has not been very active in the CUSIP space, due to lower yield profiles, and clients have concentrated their efforts in being active in other areas of the credit spectrum.

We have seen a lot of interest this year in non-CUSIP business, such as non-performing loan portfolios and esoteric credit. Anticipating this shift in late 2013, we concentrated our efforts in building our advisory business, which focuses on structuring, debt capital markets and direct lending businesses.

Q: Which market constituent is your main client base?
A: Our business has always been very client-driven. Hedge funds have been our main clients, but that is changing a little as they step away from structured finance.

We also do a lot of work with asset managers and dealers. At the moment, the hedge funds are not buying as much as they used to, but we are still seeing opportunities across Europe where good returns are available.

Q: How do you differentiate yourself from your competitors?
A: The advisory angle offers another string to our bow, but our principal strength is the fact that - unlike other broker dealers active in Europe - we are one of the few who are strictly structured credit-focused. We do not jump from one credit segment to another; we are specialists in this field, who add value for our clients.

Our offering is based on being the best at what we do. Structured credit is a market where we have a specialised level of expertise that other firms cannot offer, so we can identify the opportunities and add value for our clients. Everything we do is about adding value.

We also do not limit ourselves to the more vanilla ABS and MBS segments. We are able to look at the slightly more funky esoterics and recently, for example, we have been looking quite closely at aircraft ABS.

We are happy to provide funding or to structure in the £50m-£200m area. That is smaller than the larger banks will get involved in, but provides us with enough room to be creative.

Q: Which challenges and opportunities does the current environment bring to your business and how do you intend to manage them?
A: It is a very interesting time in the market and at the moment there is a lot of liquidity. There is activity in secondary markets, but our main challenge at the minute is finding yield for our clients.

In many ways we are not competing with other broker dealers, but with the macro environment. Spread tightening and improvements in fundamentals create opportunities for the institutional funds, but not necessarily for hedge funds, as yield profiles are completely different.

As for opportunities, we like to look at the things which the banks are not looking at. The recent ECB announcement helps a lot because it provides players with an exit. ECB buying could create a whole list of opportunities.

Q: What major developments do you expect in the market in the near future?
A: The ECB's announcement certainly made things interesting. I think it surprised a lot of people, but in a way it has been priced in already. We know there is only one way for the yields to go if there is stimulus in the market, so I think tightening is inevitable.

Having said that, geo-political risks continue to exist in the macro environment, which would have an impact. Also, the eurozone still has deep structural issues that could always creep up and create problems.

We should also see more volatility. The VIX volatility index has been active already and, of course, an increase in volatility would be good news for us.

JL