2024 was yet another positive year for the European & Australian Asset Backed Securities (ABS) markets with record issuance and continued robust performance and resilience. We review the year that was here, along with our key areas of focus for 2025.

Asset-backed securities (ABS) are a type of structured credit instrument where bonds are backed by underlying pools of assets such as mortgages, loans or other corporate or consumer debt. A portfolio of comparable assets are grouped together and held by a Special Purpose Vehicle (SPV). These are then securitised with the bonds backed by the asset portfolio -sold to investors in the market.

A CLO is a type of structured finance product which is backed by a diversified pool of corporate loans. These are typically loans to businesses with sub-investment grade credit ratings. When a CLO is issued, a large number of loans are packaged together, structured into tranches with varying credit ratings and then sold to investors in the market.

As we pass the halfway mark of 2024, the UK, and European asset-backed securities (ABS) markets continue to demonstrate robust performance and resilience. We review H1 2024 here and expectations for the rest of the year.

Private securitisation warehouses, the pre-curser to public asset-backed securities, present a compelling opportunity for investors. Offering a substantial yield pickup over public markets due to their illiquidity and complexity, investors can gain attractive risk-adjusted returns and meaningful portfolio diversification benefits from this sub-asset class. Given its complex nature, it is critical to choose a manager with extensive experience in this market to ensure risks are managed appropriately.

ESG integration within the securitised debt market is not as widely discussed relative to other asset classes and yet there are significant considerations in this space. Identifying ESG issues is important not only when reviewing transactions and the underlying loan portfolios themselves, but also when reviewing the origination processes used by the lender to market these loans and agree terms with customers.

Since its inception in the 1970’s, the global asset backed securities market has evolved beyond mortgage-backed assets to include loans secured by autos, equipment, credit card/personal loan receivables as well as high yield corporate loans. As the range of investment opportunities has grown, there is an opportunity for enhanced yield compared to similarly rated corporate credit.

Delve into the challenges and advancements of integrating ESG considerations in Asset Backed Securities (ABS).

Challenger Investment Management (CIM), part of the ASX-listed investment management firm Challenger Limited, is pleased to announce the launch of the Challenger IM Global Asset Backed Securities Fund (‘The Fund’).