The promise of blockchain, the technology behind Bitcoin, is to make financial services more efficient and secure. Clever coding and sophisticated cryptography are said to remove the need for middlemen and supervisors to validate transactions. Will blockchain-enabled Fintech start-ups indeed disrupt the financial services industry, or is a more collaborative approach more likely?
Market Insight 27-06 -2016 Blockchain – Disruptive or not?
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
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.
Edhec Working Paper 28-04-2015 Do multiple credit ratings signal complexity?
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?
Is the asset-backed securitisation (“ABS”) purchase programme, proposed by the European Central Bank (“ECB”), aimed at preventing economic deflation or at building confidence in a stuttering securitisation market? Or is it the European way to recapitalise banks? Or, is it a mechanism to prompt banks to intensify lending to SMEs and other parts of the “real economy”? Some would argue that it is meant to achieve all of these; some would be more optimistic than others. Mario Draghi, in his European Parliament address on September 22nd 2014, has provided important insights into what the programme will constitute when it is formally announced on October 2nd. Our Market Insight establishes whether it is likely to be enough to achieve the aim of having securitisation contribute to real economic growth in Europe.
Market Insight 26-09-2014 Draghi’s ABS purchase programme – will it be enough?
Some observers bemoan the lack of debt capital available to support the construction of infrastructure, yet others champion the depth of liquidity across the private sector. We examine the state of play, challenging the belief that debt capital availability is constrained.
Market Insight 16-04-2014 Infrastructure Debt Capital Markets: A progress scorecard
Picture this, you have several billion Euros to invest in fixed income type products every year and are expected to deliver a return which outperforms the market. You are required to invest in relatively low risk debt instruments. You have to contend with the consequences of Central Banks weaning the markets off Quantitative Easing and the uncertainties as to which of the many muted regulatory regimes will be implemented and in what form. Lastly, you must keep a close eye on performance of your portfolio and the potential for mark to market losses. Welcome to the world of the fixed income investor. With this in mind, we surveyed fixed income investors to find out what investment strategies investors intend to deploy over the next eighteen months.
Market Insight 30-10-2013 Who wants to be a fixed income investor? – Think carefully, it’s not so easy
Real estate investments have always been one of the main investment categories of insurance companies, especially for life insurers. Despite the long-term nature of real estate assets, calculating their duration remains challenging. As a consequence, the policy-makers who are devising the new regulatory regime for European insurers, Solvency II, have decided to adopt very punitive capital requirements for insurance companies holding these investments. In this Market Insight, we contend that the uniform approach to all real estate assets across all jurisdictions that is adopted by Solvency II’s standard model is not justified. We derive a statistically significant duration for residential real estate in multiple European countries. Based on this, we argue that Solvency II should adopt a much more tailored and risk-appropriate approach to capital weightings for real estate investments. Such a change is important because it could re-enable insurance companies to invest in real estate, a crucial ingredient to economic recovery in Europe.
Market Insight 22-05-2013 Solvency II and real estate; our challenge to the current proposals
In the aftermath of the financial crisis regulators are moving ahead with the separation of the high street and investment operations of banks. Ringfencing of the retail operations of banks is an alternative to forcing complete de-mergers. Supporters of ringfencing argue that the financial system’s stability will increase whilst banks will be able to retain some of the diversification benefits offered by the existence of retail and investment franchises under the same corporate umbrella. But is ringfencing a sustainable solution? This article examines the concept of ringfencing as pioneered in the UK, issues around its implementation and whether it is likely to achieve what it is designed for.
Market Insight 12-02-13 Ringfencing of banks: A permanent cure or a sticking plaster?