Blackstone is buying SRTs as banks rush to hedge loan risks

Blackstone’s SRT strategy is a firmwide theme that is led by its multi-asset business and also forms part of its credit and insurance strategy, a spokesperson from the company said. Photo by Angus Mordant/Bloomberg

Article content

Article content

The world’s largest manager of private assets is a big fan of SRTs, having already bought deals linked to corporate, infrastructure and agricultural loans, according to Dan Leiter, who leads the international unit of Blackstone Credit and Insurance.

Article content

Article content

Article content

“We are a major player in SRTs and we do them in kind of all the asset classes,” Leiter said in an interview with Bloomberg, adding that the firm is in talks about potential deals with several banks in Europe, Asia and the Middle East, including some who have yet to tap the market for the first time.

Article content

Article content

The alternatives giant is also considering diving into so-called counterparty risk transfers, which allow banks to insure a broader range of assets such as prime brokerage finance, a move that could add billions of dollars in deal volumes to a market already hedging US$1 trillion in loans.

Article content

“We’re doing more with banks than ever before in the history of our credit business by far,” Leiter said.

Article content

Article content

SRTs allow banks to free up capital for more profitable business. The instruments appeal to investors because they typically offer returns exceeding 10 per cent in exchange for insuring a junior risk on a loan portfolio. Large asset managers, such as Blackstone, have almost quadrupled the amount of capital deployed to SRTs since 2022.

Article content

Blackstone’s SRT strategy is a firmwide theme that is led by its multi-asset business and also forms part of its credit and insurance strategy, a spokesperson from the company said.

Article content

Article content

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.

Article content

Article content

The manager of assets worth more than US$1.3 trillion is in discussions with “a handful” of banks about SRTs, the former Morgan Stanley banker said. It may be a while before deals emerge from those talks, particularly where they involve newcomers to the market.

Article content

“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.

Article content

Middle East

Article content

Talks with banks in the Middle East have continued despite the Iran war that erupted at the end of February, Leiter said. Some banks in Dubai and Saudi Arabia have been laying the groundwork for potential deals, Bloomberg reported earlier this year.

Article content

Japanese banks were also “embracing this technology,” Leiter said. 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.