Vacatures in Institutioneel Vermogensbeheer

Why alternative lending should be the new preferred option for investors

Bron: Frank Meijer, Head of Alternative and Private Debt, Aegon - 07 februari 2019

Traditional fixed income asset classes generate low returns
The European Central Bank's (ECB) massive bond purchases in recent years have had an enormous impact on insurance companies and pension funds alongside other traditional buyers of fixed income asset classes. Over the past years, the ECB's bond purchases have taken more than 2.5 trillion euro out of Europe's publicly traded markets, driving yields lower on government bonds, investment grade credit and even high yield bonds as investors have to accept higher levels of credit and interest rate risk in order to generate reasonable returns.

Illiquidity premium and diversification
Alternative fixed income offers an illiquidity premium and/or a complexity premium compared to traditional, liquid, fixed income asset classes. Examples of alternative fixed income include direct lending to SMEs or corporate Private Placements. These have a risk profile similar to liquid high yield and investment grade (IG) bonds respectively, but due to their illiquidity – and since they're not purchased by the ECB - offer a substantial higher yield than their liquid cousins. Another example are residential mortgages, which many institutional investors have started investing in given their attractive yield and low credit risk. Long fixed-rate mortgages can also very well be used in an ALM context to match long-term liabilities. In the liquid alternative fixed income space we see a lot of relative value in ABS. These offer a - perceived - complexity premium, but probably more importantly have been bought less in the ECB purchase program than for example government bonds and IG corporate bonds, and hence yield on ABS has been less suppressed. Another attractive feature of ABS bonds is their floating-rate coupon. This allows a portfolio of ABS bonds to still achieve a positive total return in a rising rate environment, something which is hard to achieve in traditional long-duration fixed income.

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