Securitised Credit
An opportunity for attractive returns and consistent income through securitised credit strategies
Enhanced risk/return profile
Access to a diverse market with less capital saturation, offering the potential for competitive yields and risk adjusted returns relative to traditional fixed income asset classes
Low interest rate sensitivity
The floating rate nature of securitised credit provides a natural hedge to rising interest rates
Diversification benefits
Benefit from exposure to differentiated sectors such as consumer, real estate, corporate and housing, which have historically provided low correlation to traditional fixed income asset classes
Stability in uncertain times
Securitised credit is a large, diverse universe of tools that seeks to add income and diversification to a fixed income or alternatives portfolio. Most underlying securities (including mortgage-backed and asset-backed securities) are backed by tangible assets, such as housing and commercial real estate, which have historically provided inflation protection.
Securitised credit also provides floating-rate exposure, offering attractive income unaffected by interest rate moves.
Diversification from traditional fixed income asset classes
Securitised credit offers an opportunity to diversify from traditional fixed income asset classes. It provides exposure to the consumer, to housing and to commercial real estate among others where capital provision is less efficient.
Flexibility is key: you can benefit from investments in different sectors with different fundamentals and securities with different degrees of structural protection over the course of a credit cycle.
Maintain income to meet liabilities
Pension funds depend on a predictable level of income to meet your commitments. That’s difficult when interest rates are volatile and fixed income yields are low.
Securitised credit can help by giving you an alternative way to maintain your income through a range of different cash flows while not reaching down in credit quality. It can also work as a cash enhancer, either alongside an LDI solution or while waiting to deploy money into a private asset fund.
Experience and innovation from a dedicated investment team
Our team is led by Michelle Russell-Dowe, who has over 25 years’ experience in securitised markets. She is supported by a core group of 18 investment professionals with diverse industry backgrounds, including specialist portfolio managers in mortgage-backed securities (MBS), asset-backed securities (ABS), commercial real estate loans, (CREs) and collateralised loan obligations (CLOs).
We use industry-leading analytics, models and investment processes in all our decision-making. This includes proprietary loan level mortgage models and scenario analysis. We have a proven history of successfully assessing securitised credit, direct lending and asset-based finance opportunities, integrating and embedding ESG into our securitised investment process.
“Markets are struggling to grapple with factors like inflation and policy change. With securitised credit, there is the flexibility to move across credit opportunities, capitalise on its floating rate nature and embrace liquid and illiquid opportunities to help enhance returns.”
Co-Head of Private Debt and Credit Alternatives
Key Investment Risks
ABS and MBS risk: The fund may invest in mortgage or asset-backed securities. The underlying borrowers of these securities may not be able to pay back the full amount that they owe, which may result in losses to the fund.
Counterparty risk: The fund may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the fund may be lost in part or in whole.
Credit risk: A decline in the financial health of an issuer could cause the value of its bonds to fall or become worthless.
Currency risk: The fund may lose value as a result of movements in foreign exchange rates.
Derivatives risk – efficient portfolio management and investment purposes: Derivatives may be used to manage the portfolio efficiently. A derivative may not perform as expected, may create losses greater than the cost of the derivative and may result in losses to the fund. The fund may also materially invest in derivatives including using short selling and leverage techniques with the aim of making a return. When the value of an asset changes, the value of a derivative based on that asset may change to a much greater extent. This may result in greater losses than investing in the underlying asset.
High yield bond risk: High yield bonds (normally lower rated or unrated) generally carry greater market, credit and liquidity risk.
IBOR risk: The transition of the financial markets away from the use of interbank offered rates (IBORs) to alternative reference rates may impact the valuation of certain holdings and disrupt liquidity in certain instruments. This may impact the investment performance of the fund.
Interest rate risk: The fund may lose value as a direct result of interest rate changes.
Liquidity risk: In difficult market conditions, the fund may not be able to sell a security for full value or at all. This could affect performance and could cause the fund to defer or suspend redemptions of its shares.
Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.
Operational risk: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the fund.
Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve
We set an “investment objective” to make our goals for a particular fund or portfolio clear. Keep in mind that this is an objective rather than a guarantee; market conditions can sometimes make the goals tricky to achieve.