ABS Surveillance – Investors ignore the regulation at their peril

ABS Surveillance – Investors ignore the regulation at their peril

Regulators require that Asset-Backed Securities (‘ABS’) investors conduct on-going surveillance with significant penalties for non-compliance. We investigate how regulators define surveillance requirements and how an investor can demonstrate compliance. This Market Insight introduces a surveillance framework enabling investors to demonstrate best practice to their regulator.

Market Insight 26-05-2015 ABS Surveillance – Investors ignore the regulation at their peril

Do Multiple Credit Ratings Signal Complexity?

Do Multiple Credit Ratings Signal Complexity?

Evidence from the European Triple-A Structured Finance Securities

In much of the current research on market practices with respect to the use of credit ratings, the rating shopping hypothesis and the information production hypothesis feature prominently. Both of these hypotheses predict an inverse relationship between the number of ratings and a security’s funding cost; that is, more ratings will reduce funding costs and, conversely, fewer ratings will increase funding costs.

Our study finds precisely the opposite to have been the case for the mainstay of the structured finance securities market in Europe prior to 2007, namely the triple-A tranches of European residential mortgage-backed securities.

Our findings suggest that structured finance markets may behave differently than what would be predicted by two hypotheses traditionally used to explain the number of ratings and funding costs: the rating shopping and information production hypotheses. Obtaining multiple credit ratings may be a signal for complexity, for which investors demand a risk premium.

Download the full paper: Do multiple credit ratings signal complexity? Evidence from the European triple-A structured finance securities

Investing in residential real estate debt – but which type?

Investing in residential real estate debt – but which type?

With interest rates at historically low levels, fixed income investors are on the hunt for investment opportunities with attractive risk/return profiles. Residential real estate debt appears to be one such opportunity in Europe. Risks are modest and returns are alluring. But what type of residential real estate debt instrument to invest in? Loan format, bond format or securitised format? In this Market Insight we compare and contrast the alternative investment opportunities that fixed income investors have when investing in residential real estate debt in Germany, the Netherlands or the United Kingdom.

Market Insight 19-01-2015 Investing in residential real estate debt – but which type?