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    Secured finance

    Secured finance

    Why invest in Secured Finance?

    Our secured finance strategy1 offers a way to achieve higher yields than equivalently rated corporate credit by exploiting the complexity and illiquidity premia that exists in secured assets.

    The strategy aims to provide returns of 4% above cash in an asset class that has highly defensive attributes and can provide diversification benefits. Greater detail on these factors can be found below:

    1. Return potential

    The yield spread premium of ABS over corporate bonds has been favorable for some time. If the current spread persists in 2024, or narrows as we expect it to, then ABS should outperform equivalently rated corporate credit.

    Ongoing spread premium for ‘single A’ ABS over ‘single A’ corporate credit2

    2. Defensive asset class

    Secured finance may be considered a relatively defensive asset class. Senior structures can offer powerful defensive features, having priority over inward cash-flows.

    Waterfall cashflow cascade3

    Loan interest and principal payments flow through to the highest-rated (senior) bonds first, and cascade down the capital structure.

    Credit enhancement means senior bonds can have the highest ratings because they would be last in the waterfall to have to absorb losses in the event of default.

    3. Defaults history in perspective

    Defaults have been few and far between4

    4. Delivering cashflows naturally3

    Investors, such as pension schemes, requiring cashflows at specific times, can capture those premia, through careful investment, using the natural liquidity they provide.

    Why Insight, why now?

    Insight’s secured finance strategy aims to deliver high quality cashflows by extracting the risk premium available that is unrelated to differences in credit.

    The additional complexity of secured instruments, and the reduced tradability they experience provide an opportunity for premium return potential, making an investment in secured finance an attractive alternative to regular corporate bonds, for comparable credit risk.

    Spread premium of Insight’s strategy over global corporate bonds may be appealing5

    Watch video: Why 2024 could be another favourable year for secured finance

    An introduction to ABS (3m:22s)  

    We explain how asset backed securities are structured and their attributes.

    Key takeaways:

    • ABS can be backed by pools of hundreds or even thousands of individual loans
    • ABS finance car loans, credit card loans, mortgages and commercial loans
    • ABS have a return linked to short-term cash rates
    Key features of Insight’s secured finance strategy

    We believe that our secured finance approach may be differentiated in several ways:

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    Specialisation

    Specialisation

    Credit instruments structured from broad pools of smaller loans, frequently mortgages. Includes asset-backed securities (ABS).

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    Asset allocation

    Asset allocation

    Cashflows are generated from the underlying pool of loans in the form of interest and capital repayments.

     

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    Credit underwriting

    Credit underwriting

    Issues are structured into tranches carrying different credit ratings. Higher-rated (AAA) senior tranches are generally protected by waterfall structures, having priority over incoming cashflows. Lower-rated junior tranches have higher expected returns as they carry higher risk absorbing losses earlier, providing senior bonds protection from initial defaults.

     

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    Solutions

    Solutions

    Given the protection provided by the waterfall structure and the claim on the underlying pool of loans, defaults for higher-rated tranches are extremely rare.

     

    Common collateral types for ABS3

     

    Other loan types (auto loans, credit card loans) can also be pooled together to create structured assets.

    Read more: A secured finance primer: capturing value by exploiting complexity

    Approach

    Broad asset allocation model Read more Read less

    Analyse instruments; build portfolios Read more Read less

    Judgement and oversight Read more Read less

    Close

    Our broad asset allocation model determines allocations to markets, countries, sectors, and credit risk.

    Our analysis of the underlying collateral, plus any over-collateralisation available that seeks to minimise default probability, allows us to target instruments to populate portfolios.

    Our team of experienced portfolio managers use their judgement and discretion to seek the optimal investment outcome, with committee oversight as an additional safeguard.

    Meet some of the team

    Our strategy draws on expertise from Insight's Fixed Income Group, including the individuals below.

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    Shaheer Guirguis, CFA

    Head of Secured Finance

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    Shaheer Guirguis, CFA

    Head of Secured Finance

    Shaheer joined the Fixed Income Group at Insight in September 2007 and is the head of the Structured Credit Team, which is responsible for investments in the global structured credit markets, in addition to global asset-based finance activity. Shaheer is lead portfolio manager for the Insight High Grade ABS Fund and the Secured Finance Fund, as well as a number of segregated accounts. In July 2016, Shaheer relocated to New York to oversee the growth in capability within the US structured credit and asset-based finance markets. He began his career at Gulf International Bank (formerly Saudi International Bank) in 2000, where he held various positions, initially as a market risk analyst, then as an investment analyst before his appointment as a fixed income portfolio manager in 2007. Shaheer holds a BSc (Hons) in Economics from the University of Surrey and an MSc in Finance from the University of Durham, as well as being a CFA charterholder®.

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    Tristan Teoh

    Head of European Secured Finance

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    Tristan Teoh

    Head of European Secured Finance

    Tristan is a senior portfolio manager within the Fixed Income Group. Tristan joined the Fixed Income Group at Insight in May 2012 as an analyst responsible for analysing structured finance investments. He became a portfolio manager in March 2015. Prior to joining Insight, Tristan worked at Morgan Stanley in the Securitised Products Group where he was responsible for pricing and structuring of both commercial and residential mortgage loans in Europe. Tristan began his career in 2001 at Pitcher Partners working on audit and accounting engagements. He holds a Bachelor of Commerce in Accounting and Finance and a Bachelor of Business Systems from Monash University, Australia. Tristan also holds the CA from the Institute of Chartered Accountants, Australia.

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    Jason Cameron

    Head of US Secured Finance

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    Jason Cameron

    Head of US Secured Finance

    Jason joined Insight in January 2015, following BNY Mellon’s acquisition of Cutwater Asset Management (Cutwater). Jason initially joined Cutwater in 1999 and has extensive financial engineering and portfolio management experience. He heads up Insight’s US Secured Finance Team and is also responsible for the US CLO and global trade finance investment activity for the firm and managing structured finance focused funds. Previously, he was a Quantitative Analyst in Capital Markets Assurance Corp's (CapMAC’s) Financial Engineering Group and its successor, the Alternative Structured Finance Investments Group of MBIA Insurance Corp where he was involved in structuring and risk taking in CLOs and esoteric securitization transactions. Prior to joining CapMAC, Jason was an Assistant Vice President and quant in the Strategic Business Planning and Analysis Team at Citibank’s World Wide Securities Services Division. He started his career as a Financial Risk Technologist at General Electric’s Corporate Research and Development Center. Jason holds a BA (Hon) degree in Economics from the University of Western Ontario and an MA in Economics from the University of British Columbia. He also holds Series 7 and 63 licenses from the Financial Industry Regulatory Authority (FINRA).

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    David Averre

    Head of Credit Analysis

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    David Averre

    Head of Credit Analysis

    David joined Insight in May 2005 as a senior credit analyst within the Fixed Income Group and since July 2007 has been responsible for Insight’s credit research capability. He was previously with WestLB for eight years as a senior corporate analyst within their Fixed Income Group supporting trading, sales and origination. His main focus was within the telecom industry sector. Prior to this, he was an analyst and assistant marketing officer at Bank of Tokyo–Mitsubishi where he was responsible for developing the bank’s portfolio of telecom structured finance investment. David holds a BSc (Hons) in Engineering with Business Studies from Warwick University.

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    David Hamilton, CFA

    Head of Credit Analysis, North America

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    David Hamilton, CFA

    Head of Credit Analysis, North America

    David joined the Fixed Income Group at Insight in July 2014 and is the Head of Credit Analysis, North America. He has oversight of the corporate credit team based in the US and predominantly focuses on the coverage of consumer cyclical and consumer non-cyclical sectors in the US. Prior to Insight, David spent 15 years at Delaware Investments, where he held various roles, latterly as a fixed income senior credit analyst. David graduated from Millersville University of Pennsylvania with a BS degree in Business Administration in 1999. David maintains the Series 7 license with the Financial Industry Regulatory Authority (FINRA) and is a CFA charterholder.

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