Blackstone Inc. is making significant strides in the rapidly expanding market for significant risk transfers (SRTs), as banks seek to hedge potential losses on their growing loan portfolios. The world's largest manager of private assets has already acquired SRTs linked to corporate, infrastructure, and agricultural loans, according to Dan Leiter, who leads the international unit of Blackstone Credit and Insurance.
Blackstone's Growing Role in SRTs
“We are a major player in SRTs and we do them in kind of all the asset classes,” Leiter said in an interview. He added that the firm is engaged in discussions about potential deals with several banks across Europe, Asia, and the Middle East, including some that have yet to enter the SRT market for the first time. Blackstone is also exploring so-called counterparty risk transfers, which would allow banks to insure a broader range of assets, such as prime brokerage finance. This move could add billions of dollars in deal volumes to a market that already hedges US$1 trillion in loans.
Benefits of SRTs for Banks and Investors
SRTs enable banks to free up capital for more profitable business activities. For investors, these instruments are appealing because they typically offer returns exceeding 10% in exchange for insuring a junior risk on a loan portfolio. Large asset managers like Blackstone have nearly quadrupled the amount of capital deployed to SRTs since 2022. “We’re doing more with banks than ever before in the history of our credit business by far,” Leiter noted.
Blackstone’s SRT strategy is a firmwide theme led by its multi-asset business and also forms part of its credit and insurance strategy, a spokesperson from the company said. Among recent deals, Blackstone invested in an SRT from ABN Amro Bank NV and another tied to $3.2 billion of Australian and Asian project finance originated by Sumitomo Mitsui Banking Corp. (SMBC).
Global Expansion and Regulatory Hurdles
The manager of assets worth more than US$1.3 trillion is in discussions with “a handful” of banks about SRTs, according to Leiter, a former Morgan Stanley banker. However, it may take time before deals materialize, particularly with newcomers to the market. “When we start an SRT conversation with a bank that’s never done an SRT, it’s not unusual for it to take a year or more because they usually have to go through a whole regulatory process,” said Leiter, who is also global head of liquid credit strategies.
Middle East and Japan Markets
Talks with banks in the Middle East have continued despite regional tensions, Leiter said. Some banks in Dubai and Saudi Arabia have been laying the groundwork for potential deals, Bloomberg reported earlier this year. Japanese banks are also “embracing this technology,” Leiter added. In addition to the deal with Blackstone, SMBC has carried out an SRT tied to US$4.2 billion of revolving credit facilities for corporate borrowers, according to a statement from Fitch Ratings last month.
