Securitisation is the process of converting an asset, or group of assets, into a marketable security. Any type of asset can be securitised, but usually it’s an asset with periodic cash flow. The creation and issuance of tradable securities, such as bonds, is often backed by the income generated by an asset such as a lease payment or public works project or other revenue source.
The process of securitisation creates liquidity in the marketplace for the assets being securitised.
Asset securitisation allows firms to increase reserves, by transferring assets and/or transfer risks tied to these assets to a dedicated vehicle (Special Purpose Vehicle or «SPV») in exchange for liquidity.
Capital comes from the sale of different types of securities issued by the SPV such as bonds.
The securitisation process broadens the pool of interested investors by appealing to different risk-profiles thanks to different levels of risk exposure arising from the structure.