Market updates and sector developments

BlackRock has launched the BlackRock Senior Securitised Fund (BSSF), its new flagship securitisation fund, in the existing BlackRock Specialist Strategies Fund range. The firm says that BSSF is designed to meet the strong demand for securitised assets from both institutional and wealth clients seeking to diversify their fixed income exposures. Clients have demonstrated a desire for the diversification benefits, limited interest rate risk and the yield premium securitised assets typically offer versus corporate credit.

The fund utilises BlackRock’s experience across global securitised assets to identify attractive investment opportunities. BlackRock manages over US$120bn of securitised assets globally on the platform.

BSSF is actively managed and has an unconstrained investment style. Structured as an Irish-domiciled Alternative Investment Fund, it will invest in both primary and secondary offerings of securitised assets.

In terms of investment positions, BSSF is focused on the senior portion of the capital structure, with a minimum exposure of 75% to triple-A rated assets and a minimum rating of double-A minus. The fund is predominately focused on European and UK assets, but can also invest up to 25% in the US and other regions, and will have a minimum exposure of 65% to ABS and a maximum exposure of 35% to CLOs.

Finally, the fund will be classified under the EU’s SFDR as Article 8, with ESG factors acting as a core component of the team’s securitisation analysis.

In other news…

Call for ‘genuine CMU’ built on ‘large’ ABS market
ECB president Christine Lagarde’s speech at the European Banking Congress last week recognised the crucial role securitisation needs to play in financing the EU’s funding gap over the next decade. However, there was no mention of specific measures necessary to facilitate its development.

In her speech, Lagarde stated that Europe is facing a series of common challenges, with deglobalisation, demographics and decarbonisation looming ever larger. She said that while banks have a central role to play in overcoming these challenges, they cannot be expected to take so much risk onto their balance sheets.

Further, she noted that despite two European Commission action plans, Europe’s capital market remains fragmented and that the EU will not succeed in these transitions if the capital markets union (CMU) is not put back on track. “A genuine CMU would mean building a sufficiently large securitisation market, allowing banks to transfer some risk to investors, release capital and unlock additional lending. In the US, banks have access to a securitisation market that is three times the size of Europe’s. This could be even more powerful in our bank-based financial system,” she said.

Lagarde pointed to two key ingredients for success. First, the determination of all participants in both the public and private sectors. And second, this shared determination to be embodied in a change of approach.

So far, there has been a ‘bottom-up’ approach to implementing CMU, according to Lagarde. The focus has been on developing local and regional capital markets to overcome the limitations of small domestic settings and then removing the barriers to those markets being integrated further. But this approach has not led to harmonisation in the policy areas that could really “move the needle, in terms of breaking down cross-border barriers”.

Consequently, she called for a “Kantian shift” – to move from a bottom-up approach to a top-down one. Specifically, she said that supervision remains largely at the national level, which fragments the application of EU rules.

“Creating a European SEC - for example, by extending the powers of ESMA - could be the answer. It would need a broad mandate, including direct supervision, to mitigate systemic risks posed by large cross-border firms and market infrastructures, such as EU central counterparties,” she noted.

But beyond a strong institution, a single rulebook is also key. “To mitigate fragmentation in EU capital markets, a more ambitious approach should involve the creation of a single rulebook enforced by a unified supervisor. That would empower private entities to expand their ambitions in fostering high-growth private investments,” Lagarde concluded.