Consumers, data centers and esoteric ABS were among the topics of discussion this year.
Attendees at the ABS East 2025 structured finance conference, held at the Fontainebleau Miami Beach, had a lot to talk about. Investors, particularly insurers, still have substantial capital to deploy. Yet, they continue to grapple with the complexity of a shifting macro backdrop, the government shutdown, a search for new assets and a market structure that’s evolving rapidly. Here are our high-level takeaways from the conference.
Consumer ABS: Tricolor Talk and Fundamentals
The consumer sector was in sharpest focus during the conference. That wasn’t surprising, given the negative headlines surrounding fraud allegations at subprime auto financer Tricolor Auto Acceptance and its subsequent bankruptcy filing.
Many market participants see Tricolor as a company-specific story, but its troubles have sparked broader conversations about the securitization process. It was encouraging that investors and sell-side researchers pointed to stable consumer performance that’s tracking well against expectations and is supported by broader spending data. But the market wasn’t sounding complacent—many are actively exploring ways to shore up possible process weaknesses.
Current deal-level asset-backed securities (ABS) data don’t show signs of stress, but one of our leading indicators suggests that consumers are re-leveraging. And conversations with debt-consolidation issuers revealed that they’ve seen meaningful business growth, which management teams expect to increase into 2026. Despite signs of strain on consumer fundamentals, spreads across most consumer sectors have remained low versus long-term averages. We think it makes sense to reduce consumer exposure while staying focused on higher quality.
With CLOs, Moving Up in Quality and Shifting Focus
Loan fundamentals remain soft, but spreads are tight, so it’s getting harder to conduct collateralized loan obligation (CLO) arbitrage. Investors seem to be moving up in credit quality; AAA and AA tranches could tighten further given Asian demand.
Some hedge fund attendees said they’ve shifted away from US equity tranches toward BBB/BB and European B tranches. Money managers are similarly moving up the credit-quality curve, favoring A over BBB issues. Notably, representatives from some of the largest AAA CLO holders in Asia were seen actively engaging at the conference.
Relative Value and Innovation in Residential Real Estate
Residential real estate emerged as the most-liked asset class, based on our interactions. There was widespread agreement that this segment offers the best relative value among securitized assets. Much of this value is driven by wide spreads on agency residential mortgage-backed securities, but newer products are gaining traction too. They include residential transition loans, home equity investments and reverse mortgages.
Issuers of mortgage insurance credit risk–transfers (CRT) indicated that they’ve secured inexpensive reinsurance agreements covering a significant portion of their risk over the next two to three years. Though these issuers don’t rely on CRT securitization for their funding, they’re still committed to annual deals and are exploring structural changes to align with preferences for private mortgage insurance risk. Light supply is expected to keep CRT spreads narrow.
Data Centers: Apply Several Lenses
While representation at the conference from the commercial mortgage-backed securities (CMBS) sector was limited, data centers dominated the conversations. Attendees debated the fundamentals, especially in light of potential bubbles in the ongoing AI build-out. We still view CMBS favorably, but it’s important to look under the hood and be diligent with security selection.
As for data centers, we think investors need to apply multiple lenses when evaluating them. There are commercial real estate risks in co-location deals, where companies share space or resources. We also see risks to corporate issuers with hyperscaler models that provide large-scale cloud services. And there’s broader overlap among asset-backed securities and CMBS, as well as public and private markets. We think this convergence underscores the need for a comprehensive approach to risk management.
Private and Esoteric ABS: Demand Likely to Continue
As investors continue searching for spread and yield, the demand for private and esoteric ABS will likely continue. We’ve seen a growing number of new issuers—and new types of issuers—holding investor meetings. Insurance companies are center stage as liquidity providers to these segments, with decades of investing in private assets. As insurers evaluate the asset mix in the investable universe, they’re seeing opportunities, especially when new or smaller issuers come to market offering additional spread over large public corporate bonds.
Public and Private Distinction Is Fading
New, smaller issuers tend to tap the private market first for capital. As they achieve greater scale and grow, they may start shifting their sights toward public markets. But with market structure evolving rapidly, the lines between the two markets are starting to fade. In short, public markets are becoming more private while private markets are becoming more public.
In the public sphere, large issuers are increasingly launching private transactions. On the private side, we heard many discussions around unlocking liquidity via secondary trading and collateralized fund obligations. We’ve long said that insurance investors must think in terms of public and private, recognizing that different structures, forms and access points may still share identical collateral risk profiles. This makes it imperative to adopt a holistic portfolio view when assessing risk-adjusted relative value.
