‘Blind’ Wagers on a Buzzy Bank Risk Transfer Trade Have Never Been So Popular
- About half of SRTs can be tied to blind pools of borrowers
- Scant information means you “can’t adhere to ESG standards”
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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.
Yet the trade has never been so popular. Investors are lining up to insure hundreds of billions of dollars of bank portfolios for the likes of Citigroup Inc. to BNP Paribas. These synthetic risk transfers typically pay double-digit returns, and they’re increasingly being tied to so-called blind loan pools.