Clamor for Private Placements Limits Some Investors

Leading investors curbed their buying of private placements last year, but some of them say they'll have a stronger appetite for such securities in 1997.

Prudential Insurance Company of America - the market's top investor, with more than $36 billion in its private placement portfolio - said it expects to have trimmed its purchases by 41% this year, to $3.6 billion.

But next year, Prudential expects to boost its purchases to $4.2 billion, according to Richard Matthews, director of commercial real estate, investment, and private placement.

Prudential topped a list of investors compiled by Private Placement Letter, an industry newsletter. It showed that, while private placement investment in 1996 is down only slightly from last year, the four largest investors were significantly less active buyers.

Volume this year should total $43.2 billion, down from $44.8 billion last year, the newsletter said.

The drop in private placement purchases among the largest investors - including Teachers Insurance and Annuity Association and John Hancock Mutual Life Insurance Co. - reflects furious competition for the high-yield issues.

The supply problems are particularly acute for smaller investors.

"Everybody wants the yield," said Vicki Chase, vice president for securities at Standard Insurance Co., Portland, Ore., "and there's not that many new issues coming." The company, which holds $150 million in its private placement portfolio, has pared its purchases by two-thirds this year, to $10 million.

"It's been a real challenge for us to find deals that fit us," said Steven Scanlan, senior investment officer at Guarantee Life Insurance Co., Omaha.

"We will probably end up doing $35 million in private placements this year but would have liked to have done $40 million," Mr. Scanlan said. "Smaller deals are where we find the most value because the bigger players aren't driving the yield." Guarantee Life holds $318 million of private placements.

The newsletter's survey also showed that commercial banks are making inroads as lead agents on private deals.

Commercial banks handled 33% of the transactions last year, up from 30% in 1994. Investment banks led 44% of last year's deals, down from 46% in 1994.

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