Alternatives 101 - An Introduction to ABS

An Introduction to ABS


The first in a series of reports which outline the investment landscape across alternative asset classes. This edition focuses on asset backed securities



  • Asset backed securities (ABS) are bonds backed by specific pools of financial assets, pay interest periodically, and then pay back the principal amount at maturity, just like other bonds. To date, most ABS have been structured referencing underlying pools of mortgage loans (MBS) and senior secured loans (CLOs). However, an increasingly wide range of other types of income-producing assets have been used as reference pools over the years, including auto loans, credit card receivables and student loans.
  • In this note, we will first describe a typical ABS structure, together with the capital structure of the issued bonds and the built-in protections. We then move on to describe the different types of ABS that exist, the current size of the market and the historical development of the market. Next, we summarise the general performance-related attributes of these securities, both currently and in the past, together with various risk considerations. Then, these points are brought together in a section which highlights the benefits that ABS can bring to a portfolio of other investments. 
  • Admittedly, ABS constitute a niche, relatively complex sector which, as a result, does not receive much research coverage. This helps experienced ABS fund managers to consistently find value and increases the chances that they will be able to deliver attractive returns to their investors.

To read the full report click here.


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