Appetite for new assets
Is there a market for new types of investment securities?
I would have thought so given how much capital / liquidity is in the market, but conversely few new markets have been created over the last few years.
Aside from crypto (barely an asset), the last I can think of is MBS.
Based on the most helpful WSO content, there is indeed potential for new types of investment securities, especially given the current market's search for yield and the abundance of capital. While traditional securitizations like RMBS, CMBS, and ABS dominate, there are discussions around securitizing unconventional assets such as toll roads, metro systems, and asset leasing (e.g., rental cars or aircraft). These assets generate reliable cash flows, making them viable candidates for securitization.
However, the lack of new markets could be attributed to several factors: 1. Regulatory and Structural Challenges: Creating new securities often involves navigating complex regulatory frameworks and ensuring investor confidence in the underlying assets. 2. Market Saturation in Traditional Products: With significant liquidity, investors may prefer established products with proven track records rather than venturing into untested markets. 3. Risk Aversion: Especially post-2008 and recent economic uncertainties, there is a cautious approach to innovation in financial products.
While the appetite exists, the development of new markets requires overcoming these hurdles. The search for yield, particularly in a low-rate environment, could drive innovation in securitization, but it remains to be seen how quickly these new markets will emerge.
Sources: State of Credit markets now and in the future?, Investment Banking vs. Capital Markets - How different are they?, Investment Banking vs. Capital Markets - How different are they?, Bond / fixed income jargon, Leveraged Finance – 2017 Update
There's a huge market, and appetite, for new investable assets - Crypto is in my view the prime example of that. SPAC's is another one - people ate those up when they became all the rage a few years ago. Is that a 'new' market necessarily, not exactly, however it became a vehicle to access what probably would have been, or could have been, private companies that you'd have to be a QUIB to access otherwise - setting aside the 'should this even be public' or 'is this even a good company' - on top of a lot of questionable items, like SPAC's allowing you to 'skip the line' quite a bit. Leveraged ETN's/ETF's are another 'new-ish' product you've seen grow like crazy the last few years. Increased liquid alternatives type products are another area - increasing the ability to access shares/portions of illiquid items - wine, art, etc. God only knows what large institutions, hedge funds, etc. are creating synthetically out there - others may have more direct knowledge - however I'm still forever struck by years ago talking with some folks about weather futures, giving farmers further ability to hedge (as if standard commodities futures wasn't enough, let's bet on weather on top of it!) - which I'm not sure I entirely bought, but, whatever.
It's also a maturation of the finance industry writ large - there's only so much you can 'invest' in as you need to create something, first, to do so. Most 'innovation' is a derivative of something else - MBS is an overlay on mortgages, housing creation, demographics/household formation, etc. Bear in mind, most things require tons and tons of regulation, system hurdles, etc.
Lastly - and I've been terrible at investing anything in crypto so take this for what you will - don't discount the impact of tokenization, smart contracts, and other tangential byproducts having an impact on the financial industry. There are more and more products coming to market, some terrible and some really good ideas, that may just come out of nowhere.
SPACs is a good point. There does feel like a shift in the last couple decades to greater equity type risk over fixed income - a big shift since the securitization boom before that.
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