Asset-backed finance (ABF) case study: Qander Consumer Finance
An asset-backed finance (ABF) investment backed by a portfolio of Dutch unsecured consumer loans originated by Qander Consumer Finance.
TwentyFour’s ABS funds cover the whole risk spectrum available, from enhanced cash to direct asset-backed lending. The breadth and size of what we manage enables us to leverage our relationship with both issuers and banks, which can offer potentially material benefits in yield and structuring for the investors in our strategies.
Key members of the TwentyFour team are regarded as pioneers in European ABS, having been involved in the market since its first securitisations in the late 1980s. The team regularly advises European policymakers and is heavily involved in guiding the path for regulation in this sector. Accordingly, TwentyFour is one of Europe’s leading ABS managers.
Asset-Backed Securities (ABS) are a type of bond, typically issued by banks or other lenders.
What makes ABS different to other parts of fixed income, such as government or corporate bonds, is that they are ‘secured’ against a specially designed pool of loans with similar characteristics.
This collateral pool will typically contain thousands of high-quality loans such as mortgages, and the repayments on those assets are directed straight to investors in the bonds.
This is where the phrase ‘securitisation’ comes from – investors’ coupons are secured by the cash flowing from the regular interest and principal paid on the assets included in the pool.
At first glance, the ABS market can look like a confusing mix of acronyms (RMBS, CLOs, Auto ABS) but they simply identify the assets backing the bonds – residential mortgages, senior secured corporate loans, auto loans.
The European ABS market is split broadly into four areas, though certain sub-sets of these sectors are considered important distinct products in their own right, such as Auto ABS and Credit Card ABS.
ABS normally offers a higher yield for a given rating or maturity than more mainstream investments such as government or corporate bonds
ABS are virtually all floating rate, meaning they are naturally expected to be far less volatile than fixed rate bonds in periods when interest rates are volatile
Built-in features such as credit enhancement, loss-absorbing reserve funds and the legal separation of issuer and asset pool, intended to provide a level of investor protection
High transparency with transaction reports detailed enough to view the performance of each individual loan in the asset pool, enabling investors to conduct their own research
ABS remains a largely under-researched and poorly understood asset class, meaning those that put in the effort and expertise can be rewarded with a speciality premium
