Securitised Credit: An increasingly compelling allocation for institutional investors

Securitised Credit can offer institutional investors floating-rate income, lower duration and structural credit protection, making it a differentiated complement to corporate bonds and private credit.

• Returns are driven by the relevant base rate, such as SOFR, SONIA or Euribor, plus a credit spread; floating-rate coupons can benefit from higher rates while limiting fixed-income duration exposure.
• Spreads have tightened from late-2024 levels but remain more attractive than much corporate credit, whose valuations are near historically tight levels.
• Securitised Credit sits between public and private credit, offering generally daily pricing, public ratings, greater collateral transparency and more flexibility than private loans, though it remains less liquid than corporate bonds.
• The opportunity spans CLOs, residential and commercial mortgage-backed securities, and consumer loans, with the approach favouring prime borrowers, high-quality collateral and strong underwriting across the US and Europe.
• In 2022, lower-risk Securitised Credit strategies fell by around 2%, versus approximately 15% for the broader corporate bond market; the article also notes that higher-quality HSBC strategies experienced no credit losses or defaults over about 16 years, despite fluctuating market values.
• Revisions to Solvency II expected in January 2027 could improve the capital treatment of qualifying European securitisations and support both issuance and institutional demand.

Takeaway: Securitised Credit may improve income, diversification and capital efficiency in institutional portfolios, but investors must rely on detailed security selection, structural analysis and monitoring because spread widening, defaults and liquidity constraints can still cause losses.