Richard Green, director at Venn Partners, answers SCI's questions

Q: How and when did Venn Partners become involved in the securitisation market?
A: Venn Partners was established in 2009 by a team of four former bankers. We've grown to a team of 20 since then.

The business focuses on three areas: European CRE lending; bank solutions; and advisory and analytics. Our CRE lending platform - called Venn Finance - was in gestation for about nine months before launching in January with the arrival of Paul House. He was formerly head of EMEA real estate at Citi.

Venn Finance provides senior and selected mezzanine funding, targeting £500m of lending in 2013. In addition to direct lending from our own balance sheet, the idea is to provide a loan management platform and act as an aligned investment partner to support institutional investors wanting to participate in the new credit opportunities emerging in the market.

With Siem Industries Group as a cornerstone investor, we closed our first loan in April and the second in May. The pipeline is developing quickly.

In terms of the bank solutions business, we mainly work with European lenders who want to exit their non-core assets. The disciplines we cover include origination, underwriting, structuring and bringing in co-investors.

At present, we're involved in buying residential mortgage portfolios from Northern European banks, which could eventually be refinanced via RMBS. We're also active in the regulatory capital space, structuring synthetic securitisations whereby loans remain on-balance sheet and protection is bought on a tranche of the exposure for capital relief purposes.

Our first year was spent advising UK and European banks and government treasuries around run-off financial institutions. This is where our third business comes into play: the genesis of our analytics platform - Venn Risk Analytics (VeRA) - was advisory work for a European run-off bank disposing of a large legacy ABS portfolio. VeRA was 18 months in the making and is an all-encompassing solution for valuations and risk analytics for the structured finance market.

Q: What are your key areas of focus today?
A: One of the bedrocks to our three focus areas is bottom-up loan-level modelling and analysis, including a simulation and correlation of key risk parameters. This is a level of risk management that's common in the derivatives markets, but less so in structured finance.

This ultimately enables us to provide a fundamental valuation and risk analysis that captures the uncertainty around that value and which can be compared to the market price and the valuation of other bonds to assess relative value within a consistent framework. Standing behind these models are credit memos for each sector.

Much of our work is focused on creating risk frameworks for clients. They're proving especially helpful for run-off banks, for example, in terms of indicating when and at what price they should sell assets in order to maximise tax payers' money.

The process involves setting out a methodology for underwriting assets and calculating valuations. The idea is to sell once the price has reached its fundamental valuation, thereby providing a specific mandate for the portfolio manager.

It also allows all stakeholders to be involved in the decision-making and avoids potential break-downs in communication by systematising the process. In addition, it satisfies regulatory requirements for financial institutions to have greater risk analytics and management processes against structured finance positions.

Q: How do you differentiate yourself from your competitors?
A: We're independent and can provide an end-to-end process from macro analysis to valuations. Venn leverages people with a variety of skill-sets, combining sell- and buy-side expertise with rating agency and advisory know-how. Not only do we understand the underwriting process, but we also understand the secondary market.

The key is combining these skill-sets with the technological expertise to develop risk systems. Not many other firms do this: some can provide the technology, but don't provide the credit analysis on top of it; others offer credit views without the depth of analysis provided by technology.

We provide a set of credit models that forecast performance across different asset classes. Clients receive detailed valuation and risk reports tailored to them.

Where good models and data exist from other providers, we'll integrate with them. There's no point in reinventing the wheel regarding existing market infrastructure.

Transparency is another differentiating factor. Many asset managers that provide valuations to their clients are unwilling to reveal their assumptions, but our reports show the assumptions around defaults and correlations and so on.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
A: Europe remains seven or eight years behind the US in terms of availability of loan-level data, but it is catching up due to the European DataWarehouse and other central bank requirements. The ED is making a real difference because it allows investors to undertake nuanced analysis of each individual mortgage rather than across buckets of characteristics.

Our modelling method plays into this trend: it begins at the macroeconomic level for each country, flows into the credit models and forecasts cash available to run down the waterfall where our industrialised systems then analyse the resulting cashflows to the bond under a large array of simulations, and across portfolios, very quickly.

The hunt for yield means that investors are moving down the capital structure and moving into new asset classes or peripheral bonds. VeRA can be the foundation for getting new asset classes 'on policy', by quantifying economic capital at risk and demonstrating that the institution is protected at certain levels.

The market has changed: at its peak, it was a sellers' market and investors often weren't given enough time to properly analyse new issues. But now they have a stronger position and technology is supporting this.

Most arrangers offer deal models in systems such as Intex and so on, so that the buy-side can model base-case and stress-case scenarios. But we can then provide detailed valuation and risk analysis reports. Investors are recognising the importance of this type of analysis, but not many have committed the time or resources to build the necessary analytics.

Another area of opportunity is in connection with the requirement for European banks to run stress tests. VeRA enables them to do this quickly and less resource-intensively. Banks typically remain siloed, but we're helping to knock down the barriers.

Our team is made up of credit analysts, structurers, originators (covering most European financial institutions) and risk distribution. We work hard to ensure that the team is integrated, as each discipline reinforces the other - for example, we strive to ensure that our solutions are both technically sound and reflect the competing demands of sellers and buyers of risk. This also allows for coordination on projects that include multiple moving parts.

Q: What major developments do you need/expect from the market in the future?
A: Europe remains fragmented, but increasing sophistication around analytics proves that the region is maturing. Pre-2007 it was difficult for many to keep up with the pace of the market; now that it is reopening again, technology is allowing investors to be better equipped. There is a realisation that availability of data makes for a healthier market: the more that people put their views out there around different bonds, the better it is for transparency.

Away from technology, another healthy sign for the market is that certain segments of the European CMBS market can attract refinancing. We've seen a number of single-borrower deals print, for instance. Typically, they are simpler to analyse than conduit deals and some are designed to attract a natural buyer base looking for longer-dated fixed-rate investments.

German multifamily is also proving attractive, given that it fulfils the bid for duration and granular assets otherwise directed at RMBS. Indeed, the size of the syndication book for Taurus 2013 (GMF1) indicates that investors are increasingly looking across asset classes.

There are signs of life in the conduit space too, with a handful of investment banks looking to restart their conduit programmes. However, secondary and tertiary properties are still struggling to refinance.

But the most significant long-term risk to the ABS market remains regulatory uncertainty. The regulatory environment keeps changing; the longer this uncertainty prevails, the longer a recovery will take.

Having said that, there was such a strong reaction to the last Basel 3 consultation that we believe the proposals will likely be watered down somewhat. The sense we get is that some central banks and regulators are finally beginning to understand the importance of securitisation to the real economy. We anticipate a sensible conversation between the industry and regulators around which compromises can be made.

CS