Sander Nieuwland, ceo of IMC asset management (IMCam), answers SCI's questions

Q: How and when did IMCam become involved in structured credit?
A: The asset management activity of IMC began in 1998, focusing initially on distressed debt and quickly expanding into ABS, with the launch of a number of funds and CDOs. The IMC Group was founded in 1989.

IMCam was established in its present form two years ago when IMC bought out the minority shareholders and took full control. IMC implemented a strategic review in 2008 and identified asset management activity as a core focus. It turned out to be a good time to embark upon a plan of growing the business, with seed capital available for certain strategies and the opportunity to hire people with strong skills and a proven track record.

We're headquartered in Amsterdam and have an office in New York, where in late 2008 we hired Greg Drennen from the Clinton Group and prior to that Goldman Sachs to run our US ABS strategies.

In total, we cover five product areas: European ABS, European investment grade and sub-investment grade corporate credit, all three run out of Amsterdam - as well as US ABS and our behavioural strategy, which are managed out of New York. We have a quantitative analysis team that supports all of these product areas.

We're a specialised, focused team. We have launched funds in each of the five product areas, but also manage structured products and offer separate account management and advisory services to clients.

One of our recent hedge fund launches, the IMC Distressed European ABS Fund, invests in mispriced ABS assets across the capital structure and targets a 15% net return. These sorts of attractive returns are still within reach if you do the necessary work.

We have an advantage because we've been in the European ABS market since its early days and we now know and have modelled most of the assets. Prices have generally picked up, but we're still finding value in some of the more junior RMBS tranches and selective SME and consumer ABS deals.

Q: What are your key areas of focus today?
A: We launched the IMC US Mortgage Fund on 1 September 2009 (see SCI issue 152) and it's up by 20% in its first 10 months, without using any leverage. It focuses on senior tranches of the US non-agency RMBS market.

Although it was a hard sell at the time, the decision to enter the market last September was driven by the recognition of an opportunity in a severely dislocated market. Securities were cheap relative to fundamental value because of their complexity and illiquidity. While we have seen a recovery in valuations, we still see a significant opportunity in this sector.

More recently, we have hired an investment grade corporate credit team (see SCI issue 185) as an important complement to the existing business. The team brought with them a strong and extensive track record, having managed a long-only strategy during two boom-and-bust cycles and a successful long/short strategy during the recent credit crisis.

This product could not have been stress-tested more severely! It is a pure relative value Euro credit play and we believe there aren't many funds displaying such a skill-set.

The strategy is diversified, but put together with conviction. We begin by looking for the most interesting ideas and then adjust it to control risks and exposure. The team has already won its first mandate and is in the process of launching further products, both in long/short and long-only form.

Q: What is your strategy going forward?
A: In terms of the US, we will remain focused on the same RMBS and ABS space, but we will also launch a new fund to provide the portfolio management team with more tools to generate returns. Our existing fund is still attracting interest; however, given how the market has rallied, it now has a return target of around 10% compared to the original target return of around 15%.

We are in the process of launching a second fund designed to capture 15%-18% by broadening the opportunity set. For example, by introducing the flexibility to invest in different parts of the capital structure and in additional ABS sectors.

One area we have done a lot of work on is the behaviour of mortgage loan servicers, which today has a much greater impact on RMBS cashflows than it had in the past and therefore on their valuation. There are significant differences between servicers in how they deal with the various programmes the US government has introduced in response to the housing crisis.

In general, we expect the coming period to be quite volatile and so our second fund will also be able to hedge market risk while retaining the idiosyncratic risk.

Likewise in Europe, we will launch several credit funds to be managed by both our investment grade and sub-investment grade team to exploit the opportunities we see in the markets going forward.

Q: What major development do you need/expect from the market in the future?
A: The financial crisis caused a lot of pain in the credit and structured debt markets; however, we believe the capital markets will continue to play an important role in the financing of corporate and consumer activity. Banks have taken hits in capital and are less levered. When the market comes back though, it will look significantly different because of the lessons learnt from the past - structures will be more transparent and less levered, issuers will have to retain "skin in the game" and they will be based on different economics.

So, while many risky assets have rallied and spreads have narrowed considerably, the ABS sector can still deliver attractive premia. We expect investors to seek more specialised expertise when trying to extract returns from these complex securities.

At the same time, we expect a fair amount of volatility in the coming years and we believe that the most effective way to generate returns is by recognising and capturing relative value opportunities through the active management of portfolios, both in ABS as well as corporate credit.

CS