Benefits of Securitization to Investors

Investor interest in the ABS market has been considerable from the market s inception. This is because investors perceive asset-backed securities as possessing a number of benefits. Investors can  

A key benefit of securitization notes is the ability to tailor risk—return profiles. For example, if there is a lack of assets of any specific credit rating, these can be created via securitization. Securitized notes frequently offer better risk—reward performance than corporate bonds of the same rating and maturity. While this might seem peculiar (why should one AA-rated bond perform better in terms of credit performance than another just because it is asset-backed ), this often occurs because the originator holds the first-loss piece in the structure. 

A holding in an ABS also diversifies the risk exposure. For example, rather than invest 100 million in an AA-rated corporate bond and be exposed to event risk associated with the issuer, investors can gain exposure to, for instance, 100 pooled assets. These pooled assets will clearly have lower concentration risk. 

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