Securitised Assets

The BlackRock Senior Securitised Fund is our new securitised pooled fund that invests in high-grade tranches of global asset-backed securities and collateralized debt obligations mainly in Europe, including the UK. It will have a sustainable focus and is classified under SFDA as Article 8. It will be daily dealing with a T minus 3 notification period on a SONIA reference benchmark.

The fund has been designed to meet the demand for Securitised assets from a number of different client types, including pension funds who are looking for standalone access to the market or who would like to use the fund alongside other fixed income products such as short duration credit.

There are a number of reasons why investors like securitised assets. Firstly, we find that clients are attracted to the yield premium that Securitised typically offers versus corporate credit. For similar duration or weighted average lives, Securitised products can offer a comparable or in some cases higher return as well as higher ratings with the majority of the Securitised universe rated AAA versus corporate credit, which tends to average at A or BBB.

Secondly, clients are also attracted to the diversification benefits you get, given the direct exposure to the consumer rather than the sovereign or corporate. Many clients like to have Securitised sitting alongside their corporate credit exposures to create diversification for their overall fixed income portfolio.

And thirdly, most European Securitised assets have near zero interest rate risk, given they are typically floating rates with coupons linked to a floating index such as SONIA or Euribor, which, of course, is particularly appealing in a rising rate environment. There are several other factors that attracts clients to Securitised assets such as the quality, transparency, and regulatory oversight, and their robust legal structures, just to name a few.

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So why BlackRock for Securitised assets? Our experience, size, and scale means that we have seasoned teams of professionals with significant experience in the securitization industry before, during, and post the global financial crisis. We manage over $100 billion of structured products globally on our platform. Our scale, along with our focus across the entire capital structure, provides deep market access and wide reach and engagement with both originators and capital market teams. Meaning that we're at the forefront of minds when investment opportunities arise.

Our sector specialist teams ensure analysis is tailored to the asset class and market. Each team owns the investment decisions in the portfolios they manage. These decisions benefit from the wealth of information shared across the Securitised platform, the wider fixed income team, and across BlackRock as a whole. We think this helps provide an information advantage and helps create better investment outcomes for our clients.

Finally, we are innovators around environmental, social, and governance within the Securitised industry, and we're committed to advancing the sustainability agenda both at an individual issuer, sector, and industry level. ESG factors are a core component of our securitization analysis, and it is an essential part of our approach to risk management. We truly believe ESG integration is a key component to help enhance long-term returns for our clients assets.

In managing positions within BlackRock Senior Securitized Fund, we apply a number of rating geographical and sector constraints. On a rating level, it's focused on the higher quality end of the capital structure, with a minimum exposure of 75% to AAA assets, and the remaining in AA. Geographically, while it will be predominantly focused on European and UK assets, it can also invest up to 25% in the US and other regions. And finally, at sector level, there will be a maximum exposure of 35% to CLOs and a minimum exposure of 65% ABS, including sectors such as RMBS and CMBS.

The Securitised market does not have any external ESG rating providers. Therefore, it is up to investors to devise their own approach to ESG analysis. At BlackRock, ESG analysis is an integral part of our Securitised investment process. And it's structured to sit within the firm's proprietary ESG externalities PEXT/NEXT framework. It has a target of more than 50% of its assets in the highest rated ESG categories.

The results of our approach means that we seek to enhance exposure to investments that are deemed to have associated positive externalities. The fund will also apply baseline screens which limit and/or exclude direct investment and securitization issuers, which, in our opinion, have exposure to certain sectors such as controversial weapons, firearms, and fossil fuels.

So that's a brief overview of BlackRock Senior Securitised Fund. If you would like to explore this investment strategy further, please reach out to your relationship manager for more information.

Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. 

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Diversification risk: Diversification and asset allocation may not fully protect you from market risk.

BlackRock Specialist Strategies Funds (BSSF)

This document is marketing material. The Senior Securitised Credit Fund is a sub fund of BlackRock Specialist Strategies Fund (BSSF). The Fund is organised under the laws of Ireland and authorised by the Central Bank of Ireland pursuant to the Unit Trusts Act (1990). Investment in the sub-fund(s) is only open to 'Qualifying Investors', as defined in the relevant Fund Prospectus. The distribution of this document and the offering or purchase of the Units may be restricted in certain jurisdictions. This document does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. Investors should carefully review the prospectus for the fund and should consider the risk discussion under 'Risk Factors' prior to making an investment decision. Any investment decision with respect to the fund must be made solely on the definitive and final version of the fund’s prospectus. Investors should understand all characteristics of the funds objective before investing. BlackRock may terminate marketing at any time. For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in in local language in registered jurisdictions.

Asset-Backed Securities ('ABS'): An ABS is a generic term for a debt security backed by income-generating assets such as mortgage loans (e.g. RMBS and CMBS), credit card receivables, auto loans, student loans or loans to companies. ABS are usually issued in a number of different classes (or tranches) with varying characteristics depending on the riskiness of the underlying assets, assessed by reference to their credit quality and term, and can be issued at a fixed or a floating rate. In general, the higher the perceived risk contained in the class the higher the interest rate will be. 

ABS owned by the Fund, will generally fluctuate with, among other things, the financial condition of the underlying consumers who have borrowed money via the loans, general economic conditions, the condition of certain financial markets, political events, developments or trends in any particular sector/geography and changes in prevailing interest rates.

Collateralised Loan Obligations ('CLOs'): CLOs are a type of securitisation backed by loans to mid-sized and large businesses. CLOs are typically issued with multiple tranches where each tranche carries a different risk/return profile based on credit quality, risk of loss and its ranking in the priority of payments. CLOs owned by the Fund, will generally fluctuate with, among other things, the financial condition of the underlying corporates who have borrowed money via the loans, general economic conditions, the condition of certain financial markets, political events, developments or trends in any particular industry and changes in prevailing interest rates. The concentration of an underlying portfolio in any one obligor would subject the related CLOs to a greater degree of risk with respect to defaults by such obligor, and the concentration of a portfolio in any one industry would subject to related CLOs to a greater degree of risk with respect to economic downturns relating to such industry. CLOs are generally less liquid than other fixed income securities and dealer marks and valuations provided may not represent prices where assets can actually be purchased or sold in the market from time to time.

Limited recourse instruments: Securitised Assets are limited recourse debt instruments meaning that an investor will be entirely reliant on the underlying assets for repayment (typically there is no recourse to any other company). Consequently an issuer's ability to service its debt obligations may be adversely affected by deteriorating performance of the underlying assets and in some cases also refinancing risk.

Credit risk: As with other debt securities, Securitised Assets are subject to both actual and perceived measures of creditworthiness. The amount of credit risk may be assessed using the issuer's credit rating which is assigned by one or more independent rating agencies. This does not amount to a guarantee of the issuer's creditworthiness but provides an indicator of the likelihood of default. Securitised Assets which have a lower credit rating are generally considered to have a higher credit risk and a greater possibility of default than more highly rated securities. The 'downgrading' of an investment grade rated debt security or adverse publicity and investor perception, which may not be based on fundamental analysis, could decrease the value and liquidity of the security, particularly in a thinly traded market.

CLOs may also be subject to the credit risk of the selling institution as well as of the borrower. CLO issuers may acquire interests in loans and other debt obligations by way of sale, assignment or participation. The purchaser of an assignment typically becomes a lender under the credit agreement with respect to the loan or debt obligation; however, its rights can be more restricted than those of the assigning institution. In purchasing participations, a CLO issuer will usually have a contractual relationship only with the selling institution, and not the borrower. The CLO issuer generally will have neither the right directly to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of set-off against the borrower, nor have the right to object to certain changes to the loan agreement agreed to by the selling institution. The CLO issuer may not directly benefit from the collateral supporting the related loan and may be subject to any rights of set-off the borrower has against the selling institution. In addition, in the event of the insolvency of the selling institution, depending on applicable insolvency laws, the CLO issuer may be treated as a general creditor of such selling institution, and may not have any exclusive or senior claim with respect to the selling institution’s interest in, or the collateral with respect to, the loan.

Refinancing risk: CMBS, RMBS, CLOs and other types of Securitised Assets can also be exposed to refinancing risk. For example, from time to time, the market for securitised transactions has been adversely affected by a decrease in the availability of senior and subordinated financing for transactions, sometimes in response to regulatory pressures on providers of financing to reduce or eliminate their exposure to such transactions.

Extension and prepayment risk: Securitised Assets are often exposed to extension risk (where the underlying assets are repaid more slowly than expected) and prepayment risks (where the underlying assets are repaid faster than expected), these risks may have a substantial impact on the timing and size of the cashflows paid by the securities and may negatively impact the returns of the securities. The average life of each individual Securitised Asset may be affected by several  factors such as the existence and frequency of exercise of any optional redemption and mandatory prepayment, the prevailing level of interest rates, the actual default rate of the underlying assets, the timing of recoveries and the level of rotation in the underlying assets. Depending on the underlying assets making up the relevant Securitised Asset, extension and prepayment risks may have different impacts.

Fixed rated RMBS react differently to changes in interest rates than other fixed income securities. Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain fixed rated RMBS. This incoherent behaviour is directly linked to extension and prepayment risk.

Liquidity risk: Liquidity in Securitised Assets may be affected by the performance or perceived performance of the underlying assets. In some circumstances investments in Securitised Assets may become less liquid, making it difficult to dispose or value. Accordingly, the Fund’s ability to respond to market events may be impaired and the Fund may experience adverse price movements upon liquidation of such investments. In addition, the market price for Securitised Assets may be volatile and may not be readily ascertainable. As a result, the Fund may not be able to sell them when it desires to do so, or to realise what it perceives to be their fair value in the event of a sale. The sale of less liquid securities often requires more time and can result in higher brokerage charges or dealer discounts and other selling expenses.

Duties and Charges: In respect of the adjustment which may be applied to subscriptions and/or redemptions on any Dealing Day, Unitholders should note that any transaction costs incurred after the finalisation of the relevant Net Asset Value may be borne by the Fund. Unitholders should also note that the sum considered by the Manager to represent an appropriate figure for Duties and Charges and any other amounts necessary to account for estimated expenditure on the purchase or sale (as applicable) of underlying investments may result in an adjustment to the Subscription Price and/or Redemption Price (as applicable) which is higher or lower than the actual expenditure on the purchase or sale of the underlying investments. In circumstances where the adjustment on the Subscription Price and/or Redemption Price is higher than the actual expenditure on the underlying investments, Unitholders should note that the surplus will be retained for the benefit of the Fund. In circumstances where the adjustment on the Subscription Price and/or Redemption Price is lower than the actual expenditure on the underlying investments, Unitholders should note that such shortfall will be borne by the Fund.

Hedging Transactions: The Fund may employ hedging techniques. These techniques could involve a variety of derivative transactions, including futures contracts, exchange-listed and over-the-counter put and call options on securities, financial indices, forward foreign currency contracts, and various interest rate transactions (collectively, 'Hedging Instruments'). Hedging techniques involve risks different than those of underlying investments. In particular, the variable degree of correlation between price movements of Hedging Instruments and price movements in the position being hedged creates the possibility that losses on the hedge may be greater than gains in the value of the Fund’s positions. In addition, certain Hedging Instruments and markets may not be liquid in all circumstances. As a result, in volatile markets, transactions in certain of these instruments may not be able to be closed out without incurring losses substantially greater than the initial deposit. Although the contemplated use of these instruments should tend to minimize the risk of loss due to a decline in the value of the hedged position, at the same time they tend to limit any potential gain which might result from an increase in the value of such position. The ability of the Fund to hedge successfully will depend on the Investment Manager's ability to predict pertinent market movements, which cannot be assured. The Investment Manager is not required to hedge and there can be no assurance that hedging transactions will be available or, if undertaken, will be effective. Finally, the daily variation margin deposit requirements in futures contracts that may be sold by the Fund would create an ongoing greater potential financial risk than would options transactions, where the exposure is limited to the cost of the initial premium and transaction costs paid by the Fund.

ESG Policy Risk: The Fund will, in addition to other investment criteria set out in its investment policy, take into account, in accordance with that policy, ESG characteristics when selecting the Fund’s investments. Investors should refer to the Fund’s ESG Policy or more information.

The Fund’s ESG Policy is expected to include the application of ESG-based exclusionary criteria which may result in the Fund foregoing opportunities to purchase, or otherwise reducing exposure to or underweighting, certain securities when it might otherwise be advantageous to carry out such purchase or maintain its holding of such securities, and/or selling securities due to their ESG characteristics, when to do so might otherwise be disadvantageous. As such, the use of such criteria may affect the Fund’s investment performance and the Fund may perform differently compared to similar funds that do not apply such criteria. If the Investment Manager’s assessment of ESG characteristics of a security changes, guiding the Investment Manager to sell a security already held or to buy a security not held, none of the Fund, the Manager, the Investment Manager nor their affiliates accept liability in relation to that assessment. Furthermore, investors should note that relevant exclusions might not correspond directly with investors’ own subjective ethical views.

In assessing a security, issuer or index based on ESG characteristics, the Investment Manager may be dependent upon information and data from third party ESG research providers, which may be incomplete, inaccurate or unavailable. It may also seek to rely on its own proprietary models which may similarly rely on information, which is incomplete, inaccurate or unavailable. As a result, there is a risk that the Investment Manager may incorrectly assess a security, issuer or index. There is also a risk that the Investment Manager, or third party ESG research providers on which the Investment Manager may depend, may not interpret or apply the relevant ESG characteristics correctly. None of any relevant Fund, the Manager, the Investment Manager or any of their affiliates makes any representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of any such ESG assessment.

Important Information

This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.

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Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. 

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

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