Credit Risk Sharing At PGGM

PFZW has a dedicated allocation to Credit Risk Sharing (“CRS”) since 2006 and has given PGGM an exclusive mandate to invest up to 3% of its assets in CRS transactions.

PFZW initially allocated to CRS as an alternative to equity, hence the long-term target return is similar to that of an allocation to equity, for less risk. Since a number of years, CRS is seen as part of the allocation to the credit block. The CRS mandate is part of PGGM’s Private Markets Platform with its own strategic allocation in PFZW’s asset mix, making PFZW one of very few investors that have embraced CRS as a stand-alone strategy. The strategy is buy-and-hold; we do not sell our transactions in the market.

Focus of PGGM’s CRS strategy

PGGM’s Credit Risk Sharing strategy has a clear focus. We only share in healthy credit risks that are part of a core lending activity of a bank, on a ‘blind’ pool basis. The banks we partner with have a very strong position in that lending market. Often the bank is one of the national champions with ample experience in the relevant lending market and strong client relationships. Our principal belief is the importance and value of genuine sharing of risk: any losses PFZW experiences as an investor in the CRS transaction should go hand-in-hand with losses experienced by the bank in its loan book. This risk alignment is achieved by requiring banks to keep at least 20% of the shared exposures unhedged. We are used to paying credit losses to banks, as that is part and parcel of the risk consciously taken. It is important to note is that the losses paid out are well within expectations, resulting in attractive net returns for PFZW.


For PFZW, CRS is an attractive way to add unique credit risks that cannot be found in public markets, through an investment format that provides a robust return under various economic scenarios. In addition, by engaging in CRS transactions, PGGM and PFZW help the banking sector to manage and spread its credit risk exposures in a sound way, leading to less systemic risk in the banking sector and a more sustainable financial system, one of the pillars of the responsible investment philosophy of both PFZW and PGGM.

As a pension fund asset manager, PGGM by its nature has a very long-term investment focus. Accordingly, we strive to build long-lasting risk sharing relationships with top-ranking market players, engaging via CRS in the bank’s core activities. These core activities generally form an integral part of the bank’s strategy and are most likely to receive the bank’s full attention, ensuring ongoing high quality and successful risk management. At PGGM, we value being an important, reliable and long-term risk sharing partner, executing bilateral transactions of significant size, and providing high execution certainty. Fitting with a long-term risk sharing partner is rolling over transactions when they mature, continuing the credit hedge for the bank on the relevant lending books. As a partnership, we aim to negotiate deal terms that are beneficial to both the bank and the investor and are willing to consider amending these terms if the transaction is not as efficient as initially expected. The principle of alignment of interest, reflected by the bank’s minimum requirement of 20% unhedged exposure, is engrained in our way of working and guarantees that both investor and bank benefit from high quality risk management and suffer from credit losses.

In our philosophy for investing in CRS, diversification across banks, countries, sectors and types of credit risk is of great importance to secure a high and stable return. We work with different leading banks across the globe, sharing in the credit risk of different types of loans such as revolving credit facilities, project finance and trade finance products. This is done for different groups of clients such as SMEs and large corporates within partner banks. For every transaction, a thorough understanding of the underlying is of vital importance. During the investment process, it is important to understand all risk aspects associated with the transaction and the bank’s business. This includes, amongst others, understanding of the types of loans, the contract terms, the bank’s processes of extending loans and monitoring credit risk, the importance and strategy of this lending business to the bank and the performance the bank has achieved in this business through the economic cycle. Understanding the bank’s credit originating and risk management processes and track record is vital considering that we invest in ‘blind’ pools. We believe that our risk sharing partner banks are better equipped to originate and manage credit risks. It is our conviction that we cannot add value by knowing the names of the borrowers in the reference portfolio (‘disclosed’ pool) and replicating the rating of loans ourselves. More information regarding PGGM’s due diligence process to assess these risks can be found  here.

PGGM believes in the significant growth potential of the relatively young market for CRS. We find it important to help this market develop further long term on a sound and solid basis and hope to stimulate this through dialogue, knowledge sharing and collaboration where possible. We have been fortunate to find a large like-minded pension fund investor in Alecta, who has embraced investing in CRS on the basis of the same core philosophy. We have solidified our relationship with Alecta through a co-investment agreement.

Furthermore, we keenly support healthy transaction structures that ensure simplicity, transparency and standardisation to stimulate the wider acceptance and growth of this securitisation market. We aim to actively and constructively contribute to discussions, roundtables and consultations around regulation which may impact CRS, such as the STS framework or the topic of Significant Risk Transfer. More information on PGGM’s on views and activities regarding regulation is available here.

Environmental and Social Responsibility

A core belief of PGGM as pension fund asset manager is that sustainable development is essential in order to generate good and stable investment returns. This is especially true in the long term during which the money of our clients is entrusted to us. In addition, PGGM wants to contribute to a liveable, more sustainable world for the pension beneficiaries. By using investments as driving force for change, PGGM believes that a positive contribution to sustainable developments can be made.

The team’s focus regarding responsible investing for CRS transactions can be divided into two main themes. Firstly, and as referred to above, we believe these risk sharing transactions can contribute to a more stable financial system and add value to the real economy. By entering into a credit risk sharing transaction, the bank will free up capital which can be redeployed and will enlarge the bank’s capacity to lend. In addition, we consciously take up our role as one of the largest investors in this asset class in promoting and contributing to financial system stability. We do this by exchanging views with market participants and regulators on how CRS transactions can be structured in a sustainable way to ensure genuine risk sharing that contributes to both a stable financial system in the long term and a growing base of real money investors.

Secondly, when selecting the banks to partner with and the loan portfolios in which we share the risk, ESG factors are an integral part of the analysis and decision process. ESG factors represent a wide range of aspects which can have an effect - directly or indirectly - on the borrower’s ability to service its debt obligations in the future. We strongly believe that banks taking these factors into account are better equipped to assess credit risk of their corporate clients. In practice, for CRS transactions, three drivers for responsible investing are implemented the following way:

  • Exclusion: The PGGM exclusion list, defined by PGGM’s Responsible Investments team, gets applied directly to each CRS transaction.
  • Engagement: ESG factors are integrated in the due diligence we perform for a CRS transaction. We engage with our risk sharing partners to further develop their ESG policies and practices.
  • Positive Impact: CRS transactions where the loan portfolio includes financing to companies with positive ESG impact are stimulated while being mindful that the risk-return profile of a transaction should not be negatively impacted.


A detailed description of PGGM’s responsible investment policy for CRS can be found in the following paper here.

During our assessment of the banks origination strategy and quality of the risk management process, we investigate which ESG policies the bank has implemented, how it ensures these are being adhered to and impact the bank’s decisions, and to what extent the convictions behind these policies are part of the bank’s culture. Additional detail regarding our due diligence process is available here.

Track record

Since December 2006, PGGM has successfully executed more than 70 CRS transactions with a total of 18 counterparties, a cumulative invested amount of approximately € 13 billion per ultimo 2021, and referencing diversified loan portfolios in different types of credit exposures all over the world in over 90 countries. With the majority of our risk sharing partners, multiple transactions have been executed, leading to a strong relationship in which we have a better understanding of the bank’s internal processes. This track record has led us to become one of the most experienced asset managers worldwide in this segment of the securitisation market. By sharing in credit risks the bank holds as part of its core and successful lending activities, the mandate has generated an average annual return up to 2021 of around 12% for PFZW.

As per 31 December 2021, our portfolio consists of 25 transactions, with a market value of € 5.3 billion, referencing approximately € 48 billion notional of underlying loans. An overview of current investments as per year-end 2021 is  available below, as well as in the transparency list of PFZW

Transparancy List 2021 (1)

Press coverage and recognition