Structured credit: opportunities through complexity
Structured credits are tradable instruments that are based on a large pool of individual loans. For decades, these products have been an efficient component in the portfolio construction of professional investors.
Interest in structured credit solutions is growing because they offer attractive yield premiums over corporate, covered and government bonds. In addition, the floating-rate character of these products provides protection against interest-rate volatility. Since 2001, Union Investment's clients have benefited from its excellent market access and tailor-made structured credit solutions.
The global structured credit market is highly complex. This creates significant scope for opportunities that we are able to seize thanks to the expertise that we have accumulated and demonstrated over many years. We make targeted use of the specific characteristics of different structured credit products in order to optimise the risk/reward profile.
Three questions with Alexander Ohl on structured credit
Why investing in structured credit with Union Investment is a good idea
Excellent market access
The size of our business means that we are able to offer outstanding market access. Over the past eleven years, we have traded an average of €1.5 billion per annum in structured credit positions.
Market leading systems
Market-leading third-party systems as well as our proprietary systems support our fundamental investment process, providing portfolio overviews and analysis at individual credit level as well as comprehensive stress tests and simulations.
One of the largest teams in Europe
Five portfolio managers with an average of 20 years of capital market experience fine-tune the portfolio composition and negotiate CLO terms with issuers where applicable.
Investment philosophy and process
Focus on the perfect balance between safety, returns and liquidity
Our approach is to seek the optimal balance between the conflicting needs for safety, returns and liquidity. This philosophy is reflected in the consistently well-balanced risk profile we have achieved historically. Efficient risk management enables us to achieve a relatively high level of liquidity. Factors of relevance to the sale of an instrument are taken into account even before we purchase it, and risks are monitored continuously and managed with discipline.
Thorough global selection
The high complexity that is a key feature of the global structured credit markets is also what gives this asset class so much scope for opportunities. We exploit the characteristics of individual market segments and select securitisation structures very carefully. This enables us to achieve an attractive risk/return profile. Our selective and diversification-oriented approach allows us to tailor the construction of individual portfolios perfectly to the needs of our institutional clients.
Strong analytical capabilities help to capture complexity premiums
Our aim is to earn complexity premiums. A big team with extensive expertise, dedicated tech infrastructure and sophisticated information systems are key to collecting these premiums in the structured credit market. Where necessary, we negotiate CLO terms directly with issuers in order to get the best deal for our investors or reduce risks in a targeted manner.
Opportunities and risks of structured credit
- Attractive yield premiums over corporate bonds due to complexity and liquidity premiums
- Limitation of interest rate risk
- Attractive returns in spite of short interest-rate durations
- Low historical default rates of European structured credits
- Diversification effect through access to alternative forms of credit
- Market-driven price volatility and performance fluctuations as well as credit risk of individual issuers/counterparties
- Increased price volatility and risk of loss or default for investments in emerging markets and developing countries
- Illiquidity of assets
- Increased price volatility due to the composition of the funds
Are you interested in structured credit? How can we help you?
Your contact person
If you have any questions or would like to obtain further information, please find your dedicated contact below.