European Securitisations have recently attracted attention, with 2024 to date seeing record volumes of issuance since the Great Financial Crisis1. European regulators have also shown strong support through several recent reports (from Noyer, Letta and Draghi), which have led to a public consultation from the European Commission. We review the opportunities and the associated risk of European securitisations for pension funds.
Definition
Securitisations are defined by two main features in European regulation2:
1. Use of collateral
Payments to investors are provided by one or several assets. The vast majority of securitisations rely on pools of loans to households or corporates.
2. Subordination of the liabilities
The liabilities of European securitisation vehicles are distributed among different notes, or “tranches”, reflecting the priority of cashflow allocation, i.e., the subordination of tranches.
1. €112.9bn year-to-date publicly placed securitisations as of end of September 2024. Source AFME Securitisation Data Snapshot Q3 2024.
2. See article 2 of European regulation EU 2017/2402.
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