‘Blind’ Wagers on a Buzzy Bank Risk Transfer Trade Have Never Been So Popular

-- It might be the ultimate risky bet. Pension funds, insurers and hedge funds are taking on the first losses of loan failures of banks around the world — without even knowing the identities of the borrowers behind those loans.Nvidia Unveils Next-Generation Rubin AI Platform for 2026

“These are investments in first loss, so of course it is risky by nature and we’ve advertised it as such. We think it’s irresponsible for anyone to think otherwise,” Mascha Canio, who oversees risk-sharing transactions at the firm, said in a phone interview. “When the cycle is turning, people will be taking more credit risk on the chin.”Banks eager for capital relief are turning to SRTs to insure more and more of their loans, including to small businesses and to consumers on cars and homes.

His firm is invested in €6 billion of risk-sharing deals referencing €75 billion of loans, and has focused on small and medium sized European companies. Knowing the underlying names in the portfolio doesn’t make much of a difference, he said, adding that the firm draws comfort from the bank’s internal models and selection process.

They’ve been less popular among US banks, but that changed last year in the wake of the regional banking crisis, when the Federal Reserve helped kickstart the market after it released guidance in September on what types of transactions can be eligible for capital relief. That opened the door to regional banks, as well as bigger lenders.

“We need to see enough data,” said Jody Gunderson, managing principal at alternative asset manager AB CarVal. “The level of information we get is critical for any asset class but in particular for consumer portfolios, where we are choosing our spots very carefully. We ask for as much as we can to get comfortable with the risk, and we don’t always get there.

Source: Loan Digest (loandigest.net)

Private Investors Hedge Funds Capital Requirements Transactions Risk Transfers Richard Robb Pension Funds BNP Paribas Citigroup Inc. PGGM

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