AXA Investment Managers said it was gearing up for what it expects will be another busy year in European asset-backed securitizations. In response to the growing importance of this market, it has established a team of experts that will focus on the major portals of AXA investments: fixed income credit research, fixed income credit investment, and securitization and structured credit.
"AXA IM has been involved in this market since 1999, and has developed a strong ABS and MBS in-house expertise," explained Emmanuelle Nasse Bridier, group team leader for the newly established ABS group. "With the creation of the ABS group, AXA IM will leverage its existing experience and expertise. We have a strong and long-term commitment to that market and a clear ambition to be a global and leading player of the European ABS market."
Bridier, portfolio manager Stephane Handjian, and research analyst Romain Riegert head the new, Paris-based team. The ABS group will manage pure diversified Euro denominated ABS funds, and plans to continue to invest in structured products - either through dedicated funds, credit, or money-market funds. Additionally, the group will be in charge of ABS market review and coverage, including coverage of market trends, credit risk analysis for each individual transaction, relative value analysis, and performance review.
If words are not enough to prove the team's dedication to ABS, its bulging portfolio - currently at about EURO3 billion - should do the trick. And given a new, dedicated team, able to look beyond AXA's historical scope of transactions, Bridier expects to see volume swell going forward.
"The ABS/MBS asset class is already a significant part of the fixed income market," said Bridier. "We believe it should keep on growing over the next few years. This asset class provides investors with attractive investment opportunities in terms of diversification, credit quality, rating stability, and spread pick-up."
But, adds Bridier, the subordinated market is also gaining importance. According to a statement released by the company, AXA considers itself one of the leading players in the subordinated market, with portfolios invested in equity pieces and subordinated tranches of securitization transactions. Appetite for non-triple-A-rated assets is growing, generally among investors in Europe who recognize the value in going down the credit curve.
The key to the developing interest, said Bridier, is closely linked to the market's ability to better analyze these deals. As more groups such as AXA's surface - specifically designed to monitor various asset classes - Bridier believes the market will be more apt to provide the analysis and selection required to grow the subordinated market. For example, the AXA group works with 16 credit analysts when addressing a less diversified portfolio, particularly in the case of corporate-related risk.
"Here at AXA, we are excited with the evolution of the market," said Bridier. "In the future we hope to see a development of the subordinated market. There is a growing appetite for non triple-A tranches where a lot of value can be found."
The main issue in Europe that has stunted the growth of this market is a lack of standardization from jurisdiction to jurisdiction, and many investors have only recently discovered the market.
So far, the progression of this market has been driven more from the bank side than the institutional side, given that it can be a very time-consuming process. "To go down the rating curve, investors must be able to thoroughly analyze structures put in place and modelize cash flows of underlying pools of assets," said Bridier. "This fundamental credit analysis is rather intensive and most specific to this market - it has to be performed by ABS/MBS professionals."
"We will take advantage of our position and expertise in that market to catch these opportunities and deliver value to our clients."
As for this year, the group expects the market will experience a high level of issuance, but suspects it will lag until the modifications have been made to the BIS risk weightings and Basel accounting rules, which may affect the willingness of sellers of assets to use securitization as a financing alternative.
"In the past few months we have seen lots of Italian transactions, but we expect the Spanish and Portuguese issuance volumes to increase, which will favor a good diversification of portfolio holdings," said Bridier
"In terms of asset classes, we will continue to stay away from static pool CDOs and overweight transactions backed by well-diversified portfolios of assets (consumer loans, residential Mortgage). We have seen good investment opportunities in the CMBS market, which should continue to grow."
