It is the engine of prosperity. The real economy – that devoted to goods and services as opposed to financial markets – creates jobs, wealth and stability for ordinary people.
Yet across Europe it is expanding at a sluggish 1.5 per cent, held back by legacy debt and uncertainty. Returns on investments are also depressed, particularly in A, AA and AAA rated products.
That is why Eurizon Capital has launched a securitized investment fund. The Eurizon EasyFund Securitized Bond Fund is aimed at drawing more investment from the private sector to support growth and help create jobs while offering a target A-rated opportunity for institutional investors.
“It’s very important for Eurizon Capital to enter this space to support the real economy,” says Massimo Mazzini, head of marketing and business development at Eurizon Capital, the asset management arm of Intesa Sanpaolo.
With traditional asset classes delivering increasingly low yields, institutions are looking for instruments to diversify their holdings and deliver adequate returns
Massimo Mazzini, Eurizon Capital
Eurizon Capital is one of Italy’s largest asset managers, with €276 billion under management and a 14.95 per cent share of the Italian market, and Mazzini believes it has spotted an opportunity to deliver suitable returns without compromising on risk.
“With traditional asset classes delivering increasingly low yields, institutions are looking for instruments to diversify their holdings and deliver adequate returns,” says Mazzini. “The Capital Market Union [CMU] along with regulatory changes have made securitization an option again after the financial crisis.”
The idea is that the securitization of carefully selected securities will free up banks’ capital to provide extra liquidity that they can use to lend to SMEs and others to help stimulate the economy.
“The European system needs more investment to create more jobs and help the economy grow,” says Mazzini.“This fund aims to support this growth, providing additional liquidity to the European securitization market.”
In the UK and US, some 80 per cent of funding comes from private capital while 20 per cent is from bank balance sheets.
Across Europe the percentages are reversed. “The CMU wants to move towards a more US/UK model where more private assets fund the real economy. This fund is one of the first in Italy,” he says.
It’s a belt and braces approach that supplements the efforts of the credit rating agencies, which have begun to see Edwin as a way to enhance their own credibility.
To attain its target high A rating – needed to attract institutional investors – Eurizon Capital consults several dedicated tools – Intex, LPC Collateral, Markit ABS, in-house IT software and Edwin, the European DataWarehouse. Edwin tracks credit worthiness and its inclusion in the due diligence process means Eurizon Capital can independently rate the quality of the assets offered.
“It’s about making the assets and the fund transparent,”
says Massimo Spadotto, Eurizon Capital’s head of structured finance.
The fund aims to invest into securitized loans, such as commercial and residential mortgages, held against recoverable assets. “You can compare it with a corporate bond – it’s a dedicated asset. You know that there’s a procedure that will find the best price should it need to be sold to recover the investment,” says Spadotto.
Eurizon Capital sees this as a big opportunity for investors, citing the €1.23 trillion of assets that are already securitized across Europe, Turkey, Russia and other parts of the Middle East and Africa.
The timing appears good. At the recent ABS Global Conference in June, there was widespread support for securitization, which had acquired a bad name as a result of the financial crisis.
“It really has been a question of guilt by association. The crisis was caused by subprime in the US and we just don’t have subprime in Europe,” says Spadotto. “Our due diligence for lending is increasingly sophisticated, while in the US it was and is more standardised. Here it’s qualitative and quantitative.”
“But the important thing is that this fund offers investors the opportunity to diversify with a disciplined risk investment approach,” insists Spadotto.
In the US, the market was worth about $15 trillion at the end of 2015, according to the US Federal Reserve, while the European market is picking up again and is worth some €80bn annually, according to the Association of Financial Markets in Europe.
Eurizon Capital is already working on other securitized funds including one for infrastructure assets. “Such projects are much more long term, so we’re looking at a closed fund that we will probably launch later this year or early next,” says Mazzini.
With growth remaining sluggish across Europe for the foreseeable future, this new fund addresses two problems. It will deliver good yields compared with similar-rated investments at the same time as freeing up banks’ balance sheets to allow them to lend more, helping create jobs and stimulate GDP.
“The real economy needs stimulus and we can be part of that,” says Spadotto. “It’s a very interesting project for certain investors.”
 Data as of 30 June 2016. Source of the market share: Assogestioni Data.
The content of this document is for information purpose only, is targeted solely to institutional investors and should not be relied upon by private investors. Eurizon EasyFund Securitized Bond Fund is a sub-fund of the Luxembourg umbrella fund Eurizon EasyFund, established by Eurizon Capital SA and managed by Eurizon Capital SGR. This sub-fund is not registered in all jurisdictions. For more information, please consult your usual Eurizon Capital contact. This document, in its entirety or only in part, its individual sections, and the information and data provided, do not constitute advice or a recommendation to carry out operations involving financial instruments, or to subscribe to investment funds.
The information provided herein does not constitute an advisory service, an offer to purchase securities or a public call for financial saving in the United States (or of any state, territory or possession thereof) or for the benefit of the so called “US Person”, according to Regulation S of the United States Securities Act of 1933 and its amendments. No steps have been taken to have the Umbrella Fund or its Units registered with the US Securities and Exchange Commission as provided for under the Investment Company Act of 1940 and the Umbrella Fund or its Units are not registered in the Unites States according to the Securities Act of 1933.
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