• This article explains what asset-backed securities (ABS) are and how they can be created through an asset securitization process.
• The information is aimed at asset managers looking to build comprehensive strategies with ABS.
• FlexFunds offers an asset securitization program to develop asset-backed securities that enhance distribution across multiple international private banking platforms. For more information, feel free to contact our experts.

The global asset-backed securities (ABS) market is enormous today: according to Precedence Research, it surpassed USD 7.3 trillion in 2025, with growth projected at more than 6% annually through 2035.

What are asset-backed securities and how do they work?

Asset-backed securities (ABS) are bonds backed by portfolios of cash-flow-generating assets (mortgages, consumer loans, receivables, etc.) that make it possible to convert illiquid assets into tradable securities.

Structural foundations of asset-backed securities and their issuance

The securitization process behind asset-backed securities takes shape through three principles:

Converting illiquid assets into liquid ones

Asset securitization delivers immediate liquidity. The originator (a bank or fund) sells the loans to the special purpose vehicle (SPV), which in turn pays the originator through the issuance of bonds.

Risk transfer

By legally separating the assets, the SPV isolates the originator’s credit risk. The SPV acts as the issuer, so that any default falls on the pool of loans rather than directly on the originating company’s solvency.

Tranching

The bonds issued by the SPV are usually split into risk tranches (senior, mezzanine, and junior). This way, different investors gain access according to their risk appetite: The senior tranches have priority of payment and lower yields, while the lower tranches take on the first losses (and offer higher returns).

This structure grew after the 2008 crisis as a credit enhancement mechanism, since senior tranches are “backed” by the loss absorption of other tranches, improving their credit profile.

It’s worth noting that the underlying assets can be quite diverse. In the United States, for example, more than 60% of the ABS market comes from residential mortgages (RMBS), followed by auto loans and credit cards.

This diversity allows investors to choose exposure to different sectors (real estate, consumer, education, etc.), taking advantage of economies of scale.

Typical structure: originator, SPV, and investors

In a classic ABS structure, three key players are involved.

The originator (a bank, company, or other manager) originates the loans or cash-flow-generating assets. This originator sells the assets to an SPV, an independent legal entity created for the issuance.

The SPV acquires the assets and places the backed bonds (ABS) on the market, generally through a public offering or private placement. The final investors buy those bonds and receive the periodic payments.

Strategic applications of ABS in asset management

By converting future flows into immediate liquidity, ABS offer alternative financing to projects and initiatives that would otherwise depend exclusively on bank credit or equity.

For example, a real estate fund can package future rental income into an ABS, raising capital today for new developments.

This improves the liquidity of traditionally illiquid portfolios: Instead of waiting for the gradual repayment of mortgages or loans, securitization brings those flows forward in exchange for a tradable bond.

Securitization also generates scalability for managers. Originators free up borrowing capacity by selling off their current credit exposure, allowing them to originate new loans.

In turn, institutional investors take advantage of the size and homogeneity of loan pools (tens of thousands of similar loans) to obtain enough liquidity to trade in public markets.

This means banks, insurers, pension funds, and alternative managers now have access to asset classes such as mortgages and consumer credit through structured instruments, diversifying their portfolios more efficiently.

Advantages of issuing listed asset-backed securities

ABS offer several advantages for managers and investors:

International market access through ISIN codes

Issuing an ABS as a listed security massively boosts its distribution. By generating an ISIN code, the instrument can be deposited in international settlement systems (Euroclear and Clearstream), which opens access to global investors.

For example, under FlexFunds’ programs, the ABS is issued through an Irish SPV, assigning an ISIN/CUSIP that facilitates its trading across multiple jurisdictions.

The issuances are then listed on regulated exchanges (the Vienna Stock Exchange, for example, through its MTF segment). This allows Latin American or European managers to reach international private banking networks with a simple purchase order, just like any ETF or global bond.

The required transparency also provides greater confidence. The issuer must comply with financial reporting and securities market regulations, which improves the vehicle’s institutional profile.

FlexFunds, for example, publishes the ABS’s Net Asset Value (NAV) on Bloomberg, Morningstar, ICE, and other global systems, reinforcing oversight and comparability with other listed securities.

Improved risk-return profile and diversification

Thanks to the tranche structure, a conservative investor can buy senior tranches with ample credit protection (and therefore lower yield), while an aggressive investor can opt for junior tranches that offer substantially higher returns in exchange for taking on more risk.

In fact, market studies show that subordinated securitized tranches can yield more than corporate bonds of equivalent rating, compensating for the extra risk taken on.

In addition, because they draw on a diverse base of assets (consumer, real estate, private debt, etc.), ABS allow institutional portfolios to diversify their exposure.

For example, a pension fund can add to its portfolio securities backed by mortgages or mining royalties that were previously out of reach.

In many cases, ABS are collateralized by consumer debt or infrastructure projects rather than traditional corporate debt, offering risk segmentation by sector (“bucketing”) that allows for greater granularity in institutional diversification.

FlexFunds and its securitization program as a path to issuing asset-backed securities

FlexFunds is a financial services provider that coordinates the process of structuring investment vehicles through asset securitization. Its securitization program coordinates global providers (custodians, exchanges, and calculation agents) so that a manager can issue their own asset-backed ETP.

Structuring and issuance process in 6 to 8 weeks

The end-to-end process is surprisingly fast: after custom design, the vehicle’s issuance and listing are completed in approximately 6 to 8 weeks.

In that final phase, notes are issued from an Irish SPV with an ISIN/CUSIP code, transforming the asset portfolio into a security tradable in international markets.

Global distribution through recognized platforms

Subsequent institutional distribution is facilitated through internationally recognized custody and settlement platforms. FlexFunds coordinates the issuance of Euroclearable ETPs, which means the securities integrate directly into international private custody platforms.

An investor can buy them through their usual broker, just as if it were a foreign ETF. In addition, the ETP’s NAV is published in financial information systems, allowing real-time tracking. 

To learn more about FlexFunds’ products, feel free to contact our experts. We will be glad to assist you.

Sources:

• https://www.flexfunds.com/solutions/asset-securitization-key-roles-and-participants-in-the-process/
• https://www.pimco.com/us/en/resources/education/understanding-securitized-products
• https://www.bekafinance.com/learning/alternativas-financiacion-titulizacion
• https://www.gminsights.com/industry-analysis/asset-backed-securities-market
• https://flexfunds.com/flexfunds/glossary-key-concepts-asset-backed-securities/
• https://www.precedenceresearch.com/asset-backed-securities-market