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MPG Jeremy Leach

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Half of institutional investors expect issuance of asset-backed securities to grow in Europe

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Nearly half (47 per cent) of institutional investors expect issuance in Europe of asset-backed securities (ABS), such as fixed income securities listed on regulated and unregulated stock markets, to rise over the next three years.

That’s according to research by Managing Partners Group (MPG), the international asset management group. Only 4 per cent see issuance falling moderately.
 
Jeremy Leach (pictured), chief executive officer at MPG, announced the findings during a panel event at the FinanceMalta Conference in London.
 
The research found that 30 per cent of institutional investors expect to increase their exposure to ABSs over the next three years. The most common reason cited for doing so is that they are attractive on a risk/return basis (40 per cent), while 30 per cent say they give better yields than are available elsewhere in the market and 30 per cent like the fact they are secured against real underlying assets.
 
More than three in five (63 per cent) investors say ABSs can be used to increase income in portfolios and 51 per cent say they can be used to cut overall risk.
 
Leach says: “The growing popularity of asset-backed securities is understandable given that they offer outstanding levels of income secured against real underlying assets in an environment in which so many asset classes offer unimpressive returns. The yield most commonly identified as the ‘sweet spot’ for them by our respondents is 4.1 per cent to 5.0 per cent, which is very attractive when interest rates are at record lows globally.
 
“ABSs can also play a key role in raising finance for companies, especially SMEs. Securitisations were instrumental in helping the US economy to recover from the savings and loan crisis of the 1980s and the current funding gap in Europe could be plugged by ABS providers intermediating between investors and businesses that need capital.
 
“We also found that a third (33 per cent) of investors believe reputational fallout from the global financial crisis is the single biggest restraint on the ABS market in Europe. However, while the over-complicated securitisations backed by poorly selected or obscure assets at the heart of the financial crisis resulted in all structured securities being tarred with the same brush, this was largely unjustified. Post credit crunch pricing and levels of new issuance has demonstrated this amply, even if European issuance has yet to catch up with the US.”
 
MPG believes the market for ABSs is set to grow exponentially over the next few years in Europe to meet demand from companies in three main sectors – SMEs looking to expand their products and services, operators in the growing FinTech sector and alternative fund managers looking to raise extra capital without creating new shares or units in their products.
 
In all these sectors that are currently seeing growth in demand for capital MPG anticipates strong demand for ABSs that are secured on the underlying assets and provide attractive yields for investors.
 
A key factor in MPG’s decision to establish an office in Malta was the country’s Securitisation Act as well as its other attributes.
 
Leach adds: “Malta is a recognised jurisdiction for asset managers and there is an established choice of core service providers including banks, fund administrators and audit firms, it offers market access not just to the EU but Commonwealth countries, too. Its regulator, the Malta Financial Services Authority, is very approachable and has embraced European legislation, responding quickly to new directives such as the AIFMD, while its push for Islamic banking demonstrates its intention to position Malta as one of Europe’s most important financial centres.”

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