how does asset securitization work 
asset securitization begins when a lender or any company with loans or a firm with income producing assets earmarks a bunch of these assets and then arranges to sell the lot to an investment bank or other financial institution this institution often pools these assets with comparable ones from other sellers then establishes a special purpose vehicle spv an entity set up specifically to acquire the assets package them and issue them as a single security the issuer then sells these securities to investors usually institutional investors hedge funds mutual funds pension plans etc the investors receive fixed or floating rate payments from a trustee account funded by the cash flows generated by the portfolio of assets sometimes the issuer divides the original asset portfolio into slices called tranches each tranche is sold separately and bears a different degree of risk indicated by a different credit rating 16the bottom lineasset backed securities are pools of loans that are packaged together into an investable security which can in turn be bought by investors predominantly large institutions like hedge funds insurance companies and pension funds abss provide a method of diversification from typical bond mutual funds or individual bonds themselves most importantly they are income generating assets typically with a higher return than a normal corporate bond all depending on the credit rating assigned to the abs 