Cautious economic optimism, growth opportunities and technology transformation were front-and-center at this year’s top structured finance event.
We recently had the opportunity to attend SFVegas, the world’s largest capital markets conference. Hosted by the Structured Finance Association, SFVegas brought together more than 8,400 professionals from across the industry to discuss policy developments and securitization market trends.
Tom Myers, Vice President of Business Development at Concord, participated in an engaging panel discussion focused on solar Asset-Backed Securities (ABS). This was a valuable opportunity for Concord to connect with key industry players and help drive the conversation about the future of structured finance. Here are our key takeaways from the conference:
Economic and political headwinds continue, but the overall securitization market outlook is one of cautious optimism for 2023.
Issuers and investors are anticipating a shallow recession, with continued inflationary pressures and higher interest rates driving a weaker economy. But overall, the structured finance sector appears to be on solid ground in terms of market liquidity and credit fundamentals. These are some key factors the industry will be watching closely in the coming months:
- Will lingering supply chain issues continue to impact floorplan ABS issuance?
- How will continued geopolitical issues in China and Europe impact the securitization market?
- Will recent growth in the solar ABS sector continue to drive new investors toward this space?
- How will rising interest rates impact the resiliency of Collateralized Loan Obligations (CLO)?
- Will high demand for residential mortgages and home equity lines of credit continue in 2023?
The structured finance industry must move away from outdated, manual processes and embrace modern technology.
Antiquated systems and an over-reliance on paper-based processes continue to be a common issue across the financial industry. But the opportunity for modernization in structured finance is significant, and the stakes are high. At the conference, we saw a meaningful groundswell of support for digital transformation, especially in the areas of cloud-based data, distributed ledger technologies (ie. blockchain) and artificial intelligence applications.
The real value behind such technology lies in the enormous opportunities for efficiencies and cost savings once all assets and data flows are digitized. For example: Imagine a world where securitization deals are managed with a standard distributed ledger system that eliminates all the back-and-forth between different entities. This would provide complete deal transparency, not to mention making the entire deal process faster, easier and cheaper.
Here at Concord, we believe that technology is the engine driving today’s businesses. As a fintech company, technology is our lifeblood – and our competitive advantage. That’s why we continue to be a strong advocate for technology modernization across the industry, and we are excited about where structured finance is heading on this journey toward digital transformation.
The solar ABS market continues to demonstrate record-breaking growth, with no immediate signs of slowing down.
In a year when volume for most securitized asset classes was shrinking, solar ABS had record-breaking issuance in 2022. Building on this soaring volume, many conference attendees that we spoke with are seeing the potential for strong future growth. Although the space continues to be defined largely by residential solar loans, opportunities in commercial solar will likely attract even more investors.
As a leading third-party loan servicer in the solar sector, Concord is excited about the high growth potential in this thriving space. During the ABS Solar panel discussion at the event, we outlined several factors for loan servicing success, including:
- Making sure that you take the time and get to know your client and their customers.
- Reducing delinquencies and defaults, as this is critical for continued success in this market.
- Paying attention to your regional and national regulatory environments, as state and utility decisions significantly impact cashflow for solar consumers.
- Ensuring you have mechanisms in place for ongoing, transparent communication.
As environmental, social and governance (ESG) investing grows, reporting standards need to be established across the sector.
ESG investments are growing, but issuers and investors are not aligned on which metrics are essential to drive debt issuance and portfolio management activities. We heard some key conversations focused on the following topics:
- Standard ESG debt issuance disclosures
- Guidance on reporting thresholds
- ESG taxonomies
- Accounting standards
A common sentiment was that a standard reporting structure will make it easier to compare ESG investment performance with other types of investments, which would attract more investors and drive continued growth in this sector.
Wrap-up
We were inspired by the mood of optimism for the industry’s future at SFVegas. The appetite for change in areas like technology transformation was palpable, as was the buzz of excitement around rapidly-growing sectors including solar ABS. This event was a great way to build industry momentum as 2023 unfolds. We hope to see you at the conference in 2024!
