- This article explains how artificial intelligence and blockchain technology could enhance the asset securitization industry in the near future.
- The information is intended for asset managers and investment advisors interested in understanding the benefits of asset securitization in emerging markets.
- At FlexFunds, we offer asset securitization solutions to issue exchange-traded products (ETPs) that can improve the liquidity of emerging market assets. For more information, feel free to contact our team of experts.
Emerging markets are gaining popularity in the investment world, primarily due to their potential for high returns.
According to asset management firm Robeco, emerging market equities are expected to grow at an 8.25% annual rate in USD from 2025-2029, compared to a 7.50% growth forecast for developed market stocks.
Additionally, emerging market debt is projected to offer returns of around 7%, while developed market debt may yield 4.5%, and high-grade corporate bonds (investment-grade) are expected to provide 5.75%.
“Our five-year outlook envisions a new era where capital owners increasingly consider stakeholder well-being alongside shareholder profit. The free-market economy is losing some of its effectiveness, and the age of hyper-individualism has ended. Investors are now focused on balancing profitability with social impact,” commented Peter van der Welle, a Multi-Asset Solutions strategist at Robeco.
In this context, asset managers are paying particular attention to asset securitization, a process that can drive financial assets in emerging markets.
The importance of asset securitization in emerging markets
Investing in emerging markets can present two major challenges compared to investing in developed markets: lack of liquidity and distribution difficulty.
Nearly all stocks of large U.S. or European companies experience high trading volumes that enable significant liquidity, allowing high-net-worth investors and asset managers to “enter” and “exit” investments with ease and without forced losses.
Due to their reputation and trading volume, assets listed in these markets are available worldwide through various brokerage platforms.
However, this is not always the case in emerging markets. Some companies are publicly traded with strong growth potential and are traded below their intrinsic value, but low liquidity prevents large capital inflows from tapping into this potential and investing.
Since these stocks are not always widely known or traded, they are often excluded from foreign exchanges, limiting accessibility for local investors.
Asset securitization can make illiquid or less liquid assets, such as emerging market stocks, more easily tradable. This allows issuers to increase asset liquidity without needing to divest holdings.
New technologies in the field of securitization
While asset securitization has existed since the 1980s, it is expected to undergo significant change in the coming years due to two emerging technologies:
Artificial intelligence
Artificial intelligence (AI), widely used in the asset management field, will play a crucial role in asset securitization as well. Specifically, AI can assess the value of underlying assets and automatically structure exchange-traded products (ETPs).
Additionally, machine learning algorithms can analyze historical asset performance data to project future cash flows, probability of default, correlations, and more.
Blockchain
Blockchain technology, on the other hand, can streamline processes, increase transaction speed, and reduce costs while enhancing transparency.
According to Deloitte, the combined benefits of blockchain can reduce overall risk in the asset securitization market, thus attracting greater investor interest.
In both cases, these technologies allow asset securitization in emerging markets to become more prominent, boosting the financial industry in these regions.
FlexFunds: A key player in asset securitization
It’s important to mention that, to leverage the benefits of asset securitization in emerging markets, companies like FlexFunds utilize the latest technology to offer optimized, cost-efficient products.
At FlexFunds, we are supported by internationally renowned service providers such as Interactive Brokers, Bank of New York, CSC Global, and Bloomberg, among others.
This enables us to offer high-quality, fully customized ETPs based on your objectives and needs, along with comprehensive services that include:
- Listing on stock exchanges.
- Fund accounting.
- Back-office and corporate administration services.
- Net Asset Value (NAV) calculation.
For more information on asset securitization and FlexFunds’ services, feel free to contact our team of specialists. We’ll be happy to assist!
Sources:
https://www2.deloitte.com/us/en/pages/regulatory/articles/applying-blockchain-in-securitization.html
https://marketingstorageragrs.blob.core.windows.net/webfiles/Future-of-Securitization-Amidst-the-Blockchan-and-AI-Revolution-ARGN-031424.pdf
