Securitization is a fundamental mechanism of modern capital markets, but it is often misunderstood. In its simplest form, it involves pooling income-generating assets, such as mortgages, auto loans, or business loans, and transforming them into tradable securities. Instead of relying solely on bank balance sheets, this process allows reaching a broad base of investors, improving liquidity and expanding funding sources for the real economy. It directly connects loan beneficiaries with capital markets while offering investors diversified returns and exposure.
Although securitization continues to be associated with the global financial crisis, the causes that led to that phase were mainly related to weak underwriting standards of the underlying loans. Today the context has radically changed: stricter underwriting standards, greater transparency, and more robust regulation have transformed the market. Over the past two decades, these advances have supported the resilience and stability of a wide range of securitized investments, including CLOs (collateralized loan obligations) and asset-based finance solutions.
For Europe, the importance of securitization is particularly evident. The region’s economy still significantly depends on bank credit, with a share of financing from banks higher than that observed in other developed markets. This dependence increases vulnerability to credit supply restrictions by financial institutions and can limit access to capital for businesses and consumers. An efficient and well-developed securitization market can help rebalance this situation, encouraging the inflow of global capital into European credit markets. This would expand the availability of financing in the real economy, supporting strategic sectors such as residential construction, small and medium enterprises, infrastructure, and the energy transition.
Despite its potential, the European securitization market has remained relatively limited after the global financial crisis and has not kept pace with other developed areas, including the United Kingdom, Australia, Japan, and the United States. Regulatory complexity, limited investor access, and particularly stringent regulatory requirements have restrained both demand and supply. As a result, European investors have had limited access to a large part of the global securitization market, reducing diversification opportunities and weakening domestic demand. This has fueled a vicious circle where weak demand has contributed to containing new issuances, while limited supply has further hindered market development.
That is precisely why the European securitization reform is of crucial importance. A more balanced and principles-based regulatory framework could reduce complexity, improve market access, and enable European investors to compete on a more level global playing field. This does not mean giving up oversight or investor protections, which remain fundamental. On the contrary, by encouraging greater participation of institutional investors and broadening the investor base, the reform could revive the securitization market, channel more private capital toward the real economy, and strengthen the competitiveness of European capital markets. Not by chance, the revision of the European economic model published in 2024 by Mario Draghi highlighted the need to increase the efficiency of the continent’s capital markets, indicating securitization as one of the tools potentially able to support the economy’s financing capacity.
In this context, the question for investors is how to concretely access the opportunities offered by securitization. For institutional investors, this generally occurs through asset-based finance (ABF) and asset-backed securities (ABS) strategies, a fixed income segment that is attracting growing interest. These instruments generate contractual cash flows guaranteed by underlying assets and have characteristics different from traditional corporate credit. They can offer advantages in terms of portfolio diversification, more customizable coupon flow profiles, and, in many cases, higher yields compared to corporate bonds with similar credit ratings.
In the most senior tranche of the capital structure, AAA and AA rated CLOs (Collateralised Loan Obligations) represent a particularly interesting opportunity and are gaining increasing relevance for a broader range of investors, including intermediaries and retail investors such as those in Italy. CLOs are bond instruments secured by a diversified portfolio of corporate loans. Senior tranches benefit from priority in cash flows and significant credit protection mechanisms, creating a wide safety cushion to protect investors in case of default of the underlying loans. Senior tranches of CLOs with AA and AAA ratings have historically shown remarkable resilience, without recording defaults, while offering attractive yields and low duration. Moreover, their floating rate nature increases their appeal in environments characterized by high or persistent interest rates.
Following regulatory changes introduced in Europe in recent years, European investors can now more easily access securitized credit through dedicated solutions, such as the PGIM Global AAA CLO Fund. A global approach, investing in both US and European CLOs, can help improve portfolio diversification, seize relative value opportunities across different markets, and generate a high-quality income stream within a well-structured allocation. In a context characterized by sustained demand and still attractive yields, securitized credit can represent an efficient solution to access diversified income sources while maintaining strong attention to capital preservation.
