It is encouraging that asset-backed securities have become a key part of investors’ portfolios (“Exercising ABS”, Credit, July/August), as fund managers increasingly turn to securitised instruments in the light of soft equity returns and to diversify hedge strategies. However the very nature of the residential mortgage-backed securities market means that such record levels of ABS issuance will not always be sustained.
In future, it is likely that corporate securitisation and in particular trade receivables (invoice) securitisation will be an important component of the ABS market. Invoice securitisation will help provide European corporations with a source of low-cost finance to support the tentative economic recovery.
Our recent research amongst Europe’s top 1,000 companies clearly showed that securitisation has shaken off the association with balance-sheet engineering, and is now perceived as a viable alternative source of working capital finance. Almost a fifth of these corporations claimed to have conducted a securitisation, with invoice securitisation the clear frontrunner.
Although mortgage-backed securities still dominate the ABS market at the moment, we predict that over the next few years the market will become far richer in the variety of assets securitised, offering fund managers a greater range of hedge investment instruments.
Executive vice president