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Credit Risk Sharing

Since 2006 PGGM has been investing in balance sheet synthetic securitisations on behalf of PFZW, the Dutch pension fund for the care and healthcare sector. We call these ‘Credit Risk Sharing’ (“CRS”) transactions as this name better reflects their nature and purpose in our portfolio.

As per 31 December 2019, we have around € 6 billion invested in 22 risk sharing transactions, referencing around € 67 billion of loan portfolios related to a diverse group of economic sectors and credit risks across the world. This illustrates that we have become one of the most experienced and largest active investors worldwide in this segment of the securitisation market.

50 transactions closed since inception

The portfolio consists of 22 transactions as of end 2019

14 risk sharing partners

All market-leading banks

11 billion invested (EUR) since inception

€ 5.7 billion as of end 2019

67 billion loan notional hedged (EUR)

As of end 2019

PGGM and PFZW value CRS as an asset class with a dedicated allocation in the long-term asset mix. Firstly, because CRS offers an attractive risk-return profile and allows for diversification of exposures to credit risk. As such CRS helps providing pensions for our beneficiaries in the long term. Secondly, when structured appropriately, CRS contributes to a more stable financial system. By helping the banking sector to partially reduce their credit risk exposures and share these with investors, systemic risk is reduced and the financial system becomes more sustainable.

As a long-term investor, we strongly believe in supporting a healthy and long-lasting market for Credit Risk Sharing. To achieve this, CRS transactions must function appropriately for all relevant stakeholders: banks must benefit from a genuine sharing of credit risk and investors must benefit from a well-structured investment with an attractive return and easy-to-understand risk profile. Regulators must benefit from standardised transaction structures that are transparent. Through position papers, conference participations and dialogues with banks and regulators, we actively aim to improve understanding of this relatively unknown and developing asset class, as well as to stimulate healthy transaction standards throughout the market.

The purpose of this website is to further improve broad understanding and acceptance of CRS by sharing our knowledge and experience. We provide a high level overview of what CRS transactions are, and why and how we invest in CRS. In addition, we provide further insight in more detailed aspects of CRS transactions and how we diligence and structure these to ensure risks are adequately understood and mitigated where possible.

Please find an overview of our publications on credit risk sharing here:

Current topic: STS for CRS

Eu Tax

 

In July 2020, the European Commission published its report supporting the establishment of an STS framework for synthetic securitisation – in short STS for CRS. We strongly support this. However, ensuring the long-term success of the STS for CRS framework in good and adverse times demands a combination of alignment of interest, beneficial capital treatment and collateralisation.

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Credit Risk Sharing (“CRS”) is an excellent tool for banks to manage their credit exposures and capital needs, while providing an attractive investment opportunity for investors. Here we provide detail on how CRS works.

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We believe CRS provides unique exposure to underlying credit risk originated and monitored by high quality credit institutions. CRS transactions have an attractive risk-return profile with stable cash flows and provide diversification to public market credit exposures.

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PGGM has invested in CRS since 2006 on behalf of PFZW. As a pension fund investor, we have a long-term investment horizon which shapes our approach to investing in CRS. Here we highlight our core strategy and philosophy, our views on environmental and social responsibility, and our track record.

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Credit Risk Sharing (“CRS”) is an excellent tool for banks to manage their credit exposures and capital needs, while providing an attractive investment opportunity for investors. Here we provide detail on how CRS works.

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PGGM CILI team

The CRS mandate is managed by the Credit & Insurance Linked Investments (“CILI”) team, part of PGGM’s private markets platform. As per September 2020, the CILI team consists of 19 professionals with a diverse set of backgrounds and skills. The team also manages a mandate to invest in Insurance Linked Investments.

More on the PGGM CILI team

Due diligence is one of the cornerstones of the investment process of the PGGM CILI team. Due to the blind pool nature of our CRS transactions, it is essential to have a thorough understanding of the bank and the relevant processes and track record, both from a qualitative and quantitative perspective.

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Structuring a CRS transaction, which consists of determining and negotiating the terms, conditions and structure, is a crucial element driving the risk profile of a transaction. Transaction structuring determines the composition of the underlying pool and how the credit risk of that pool is shared with the investor. Further, the structure should ensure that the key requirements of both investor and bank are met, as well as the regulatory requirements.

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Several regulations affect the economic efficiency and structuring of CRS transactions. In this nascent market, the applicable regulation is continuously developing. Here we highlight the most important regulations, both current and developing, how these impact CRS, and our views on these.

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Due diligence is one of the cornerstones of the investment process of the PGGM CILI team. Due to the blind pool nature of our CRS transactions, it is essential to have a thorough understanding of the bank and the relevant processes and track record, both from a qualitative and quantitative perspective.

More

Questions?

For questions please contact Mascha Canio. 

Mascha Canio 480X480 Pggm (1)

Mascha Canio

Head of Credit & Insurance Linked Investments