With the era of ultra-cheap money over and regulatory pressure forcing banks to retreat from a range of lending activities, investors have a new opportunity to acquire or take exposure to high-quality assets – and target attractive returns in the process.

In Europe, this private credit opportunity is hiding in plain sight in the form of asset-backed finance (ABF). ABF transactions are secured against a pool of assets, and the performance of the investment is solely dependent on the cashflows generated by those assets, rather than the external market factors that can influence returns in public markets such as equities and bonds. Europe’s highly regulated and homogenous markets for consumer lending ensures ABF investors can target a broad range of high-quality assets that have historically delivered stronger credit performance than US comparables.

The specialist nature of ABF transactions means investors with the right expertise can target far higher returns than could be expected from more mainstream fixed income markets.

 

Author:

Douglas Charleston, Partner,Portfolio Management TwentyFour Asset Management