Q&A: Needleman Sees More Moves Ahead
February 16, 2009
After heading the high yield group at KBC Financial Products for five years, Eric Needleman, along with the rest of the KBC high yield team, packed up in January and moved to Sterne Agee. While the move is not a large one geographically-the team's new offices are in the same building, 24 floors down-they moved from a large firm with more than 355 billion ($457 billion) in assets under management to a firm with approximately $13 billion in assets, which that had not had a high yield group before.
Leveraged Finance News spoke with Needleman about making the move and about how he sees the leveraged finance markets today.
LFN: What do you hope to do differently at Sterne Agee than you did at KBC?
Needleman: KBC was definitively always a quantitative shop. It was a firm that was steeped in derivatives. It always had that quantitative feel, where there was a black box approach to the business. And high yield is a much more fundamental product; it's more qualitative than quantitative. We were always at odds with the firm in terms of how many fundamental credit research analysts we needed in order to serve clients properly. ... Sterne Agee allowed us to bring in our whole research team. ... The firm said that not only could we come over with our entire team but we could add to research as we saw fit. That was a very compelling reason for us to make the move. We found a firm that would give us enough capital, not to take proprietary bets but to at least be able to facilitate customer business. ... Some of the other broker dealers we spoke to weren't willing to commit any capital to high yield. ... We spoke to a wide variety of investment banks, broker dealers, and traditional banks.
Will we continue to see sales and trading desks leaving big firms for smaller firms?
Needleman: No question. The move is going to be based on a bunch of different things. One is, and we felt this as well when the Belgian government took a stake in KBC: You don't want to be, by proxy, a government employee working on Wall Street. We weren't alone in feeling like that. Almost all the big shops that have taken TARP money are going to be beholden to whatever the government tells them they can pay their employees. For guys that are used to making X amount of dollars, it's scary to be making a fraction of that. Even if you're doing a good job, and you're helping manufacture revenue and your clients are happy with you, at the end of the day, someone else losing money at an alarming pace is going to affect your compensation. People want to have a little more direct control over their futures and their compensation. You will continue to see that.
Would you describe your views of the leveraged finance market as optimistic?
Needleman: In terms of the market, I would say that despite all of the pain that there is on Wall Street, the pain that there is on Main Street and the fact that we do see defaults really kicking up in a pretty significant way ... we're still optimistic about the high yield market. There are some companies out there trading at really stressed and distressed levels, and these are companies that are going to make it.
Where do you see the biggest opportunities for investors in the leveraged finance markets?
Needleman: We're slightly biased in that we don't have a huge loan platform. Within high yield, we see a lot of value in the packaging space; we see value in pockets of gaming. We see value in pockets of consumer products and some diversified manufacturing. So there are some pockets of value out there. ... As much as there's a slowdown on the consumer side ... there are some once-in-a-career opportunities in terms of value that are out there, and if you take the time and do the work you can find them. On the whole, I wouldn't say we're wildly bullish, but we do think there are definitely real pockets of real value out there where investors can out-perform.
The high yield bond primary market is showing signs of a thaw. Do you think there is a market recovery underway? Do you see any possible recovery coming on the loan side this year?