As part of our series looking at what firms did to win their accolades at the PP Investment Awards 2024, PP speaks to Amundi Asset Management head of European securitised credit Hubert Vannier about winning the award.
What does it mean to win this award?
Winning this prestigious award is a clear recognition of Amundi's commitment to excellence in delivering high quality services to investors in European securitisations. This accolade serves as a testament to our engagement in a complex and ever-evolving asset class, and we take immense pride in this acknowledgment, which reflects our dedication to innovation and quality.
Investing in securitisations requires a profound understanding of the diverse market segments, which range from German household auto loans to mortgages in the UK, Netherlands, and Italy, as well as leveraged loans to corporations. Each of these segments presents unique challenges and opportunities, necessitating a tailored approach to investment. Our rigorous pre-trade assessments of the underlying asset pools are critical, as they allow us to comprehensively evaluate the quality and performance potential of these assets. Additionally, our detailed analysis of transaction structures ensure that we fully understand the risks and rewards associated with each securitisation.
To navigate this complexity, we employ advanced analytical tools that enable us to conduct comprehensive stress tests on securitisations. These tests evaluate various scenarios involving prepayments, defaults, and recoveries of collateral, as well as strategic decisions like call exercises by transaction sponsors. This level of analysis is essential for making informed investment decisions and managing risk effectively.
Most importantly, the intricate nature of this asset class underscores the critical role of human expertise. Our skilled professionals excel at performing this complex analysis, leveraging their extensive experience and knowledge to interpret transaction specific data and market trends. They are adept at identifying innovative features that often emerge in securitisations, which are designed to adapt to new collateral types, regulatory changes, and evolving market conditions.
Winning this award is a recognition of our capabilities. It also reflects the dedication, and collaborative spirit of the entire Amundi team. It is a validation of Amundi commitment to delivering value to investors and reinforced. We are honoured to receive this acknowledgement of our efforts and remain steadfast in our mission to provide the highest level of service and expertise to our clients.
What do you believe sets you apart from your peers?
At Amundi, we pride ourselves on several distinctive advantages. Our approach combines a deep understanding of the market with a commitment to rigorous risk management and investment strategies.
One of the key differentiators is our focus on maximising returns while maintaining strict risk control. Unlike other asset managers, we adhere to a conservative investment philosophy that prioritises expected returns without compromising on risk management.
Our teams consider multiple risk perspectives simultaneously, ensuring a comprehensive approach to portfolio management:
We closely monitor ex-ante volatility to prevent any gradual increase in portfolio risk during market volatility regime changes. This proactive approach enables us to adjust our strategies in real-time, safeguarding our investors' interests.
Our detailed portfolio allocation is meticulously calibrated across various collateral types and ratings to minimise drawdown risk. By diversifying our investments and underweighting the riskiest, we enhance the resilience of our portfolios against market fluctuations.
We implement comprehensive constraints to ensure that the targeted risk/return profile for our investors is consistently met. Our commitment to maintaining stricter investment restrictions than our competitors is exemplified by our decision to refrain from investing in non-conforming mortgages for our flagship strategy.
Launched just before the Great Financial Crisis in 2006, this strategy boasts one of the longest track records among European securitisations investment grade open-ended funds. This long history showcases our expertise in risk control, with strong performance last year and no defaults recorded. Notably, the strategy has experienced minimal drawdowns in adverse conditions, emerging as the best performer among investment grade securitisation strategies in 2022, with one of the smallest drawdowns during the mini-budget crisis.
In addition to our robust investment strategies, we have implemented in-depth ESG analysis for both the collateral and sponsors of each securitisation. Our comprehensive, internally-developed sponsor analysis is applied to all issuers, consistently with our overall methodology. Our ESG collateral analysis is asset class-specific, reflecting our "best in class" approach. For example, in the case of residential mortgage-backed securities (RMBS), we assess the energy efficiency of properties financed by the securitised mortgages by comparing their energy performance certificates to the relevant market. For auto loans, we evaluate the nature of the motorisations of financed vehicles against the European market. A pool with a higher proportion of electric or hybrid vehicles will receive a superior ESG rating, guiding our investment decisions.
This commitment to ESG excellence in securitisation management has been recognised, as our flagship strategy is the first open-ended securitisation fund to receive an SRI label (AFNOR). This accolade not only underscores our dedication to responsible investing but also positions us as a leader in the integration of ESG factors into the securitisation space.
In summary, our unique combination of rigorous risk management, innovative investment strategies, and a strong commitment to ESG principles distinguishes Amundi from our peers.
How do your investment strategies help pension schemes meet the challenges they face?
We understand that pension schemes face a myriad of challenges in today's complex financial landscape, and we are committed to providing a range of solutions tailored to their unique needs. Our offering include two open-ended funds. Both funds are designed to provide daily liquidity, stringent risk control, and attractive returns, making them excellent choices for pension schemes seeking stability and improved returns.
In addition to our flagship funds, we offer customised solutions that can be focused on specific segments of the market. For instance, we manage dedicated funds invested exclusively in high-quality securitisations that carry the STS quality label. This focus on quality ensures that our investors are exposed to assets with lower risk profiles. We also oversee funds and accounts concentrated on collateralized loan obligations (CLOs), as well as dedicated vehicles for investing in loan pools, including Dutch and French mortgages and SME loans.
Currently, we identify two segments in the securitisation market that present significant opportunities for pension schemes:
- Prime RMBS, Auto Loans, and Consumer Loans: These assets provide exposure to loans to households, which is particularly appealing given the exceptionally low unemployment levels across Europe. We anticipate that default rates for these assets will remain very low in 2025, while the spreads on related securitisations offer a substantial pickup compared to corporate bonds with similar ratings. This combination of low risk and attractive returns makes these assets an excellent choice for pension schemes looking to enhance their portfolios.
- CLOs: Using leveraged loans to high-yield corporates as collateral, CLOs benefit from reinforced structures. While CLO 1.0 issued before the Great Financial Crisis exhibited limited default rates, CLO 2.0, which have been in place for the past decade, have not experienced any defaults in Europe. Investment Grade tranches are very well protected against potential crises, offering some of the highest returns in the securitisation space. Even AAA-rated tranches provide spreads as wide as 100 bps. Although CLOs are more volatile than ABS and RMBS, they have demonstrated robust liquidity, including during the mini-budget crisis in 2022. This liquidity is beneficial for pension schemes that may require flexibility in their investment strategies under certain circumstances.
We remain cautious regarding other segments of the securitisation market, such as non-conforming RMBS and commercial mortgage-backed securities (CMBS), due to their cyclicality. We also approach whole business securitisations with caution, as they can pose significant risks that may jeopardize not only the riskiest tranches but also more senior ones. Regulatory and technological changes can dramatically impact the value of expected cash flows in these areas, and we are committed to staying ahead of these developments to protect our investors.
In summary, our investment strategies are designed to help pension schemes navigate the challenges they face by providing a diverse range of high-quality investment options, rigorous risk management, and a focus on attractive returns. We are dedicated to supporting our clients in achieving their financial goals while adapting to the evolving market landscape.
How will you continue to improve your investment offering over the coming 12 months?
At Amundi, we are committed to a culture of continuous improvement and innovation. The financial landscape is constantly evolving, and we strive to adapt our processes and offerings to seize new opportunities. Our recent product developments are designed to offer these opportunities to our investors.
We have launched a AAA strategy in June 2024. This strategy focuses exclusively on the highest quality tranches, providing investors with a low-risk option that is particularly appealing in the current situation, where interest rate and credit spread volatilities are expected to increase. We plan to actively market this to schemes seeking liquid assets with minimal credit risk. With its defensive features and low interest rate sensitivity (0.1 year), we expect its volatility to remain low in 2025. The current carry, with a spread above swaps of 100 bps, is anticipated to be the primary source of performance over the next year, making it an attractive addition to any investment portfolio.
In 2024, we also ramped up a dedicated fund for a pension fund, concentrating on Investment Grade CLO tranches. This tailored solution is designed to optimize risk/return profiles while accommodating the specific constraints of pension schemes, including buy-and-hold investment accounting. By offering customised solutions, we empower our clients to align their investments with their unique objectives and risk tolerances.
Furthermore, we will continue to engage with European and UK regulatory authorities to advocate for securitisations. We believe that securitisations can play a vital role in supporting investments by providing funding and capital relief to original lenders. Our advocacy efforts are focused on promoting prudential regulatory changes that favour securitisation investments by reducing capital charges under Basel 3 and Solvency 2, as recommended by the Draghi report. Such changes would enhance the attractiveness of securitisations for investors, potentially increasing the prices of existing assets.
We expect that pension schemes, as some of the few investors positioned to enter this market ahead of others, could benefit significantly from these developments. This regulatory shift could lead to substantial growth in the securitisation market, possibly doubling its size, while improving liquidity and diversity. Amundi's team is fully prepared to support investors in capturing these opportunities, providing the expertise and resources necessary to navigate this evolving landscape.
In conclusion, our commitment to continuous improvement, innovation, and proactive engagement with regulatory authorities positions us to enhance our investment offerings over the coming year.
The winners of the 11th annual PP Investment Awards were announced at a reception in London on 20 November. To see the full list of winners and find out more about the awards, visit: www.investmentawards.co.uk
