Alecta and PGGM are pleased to announce that they have entered into a risk sharing transaction with J.P. Morgan on the basis of corporate loans originated by its Corporate & Investment Banking unit.
PGGM, Alecta invest in BBVA’s inaugural project finance risk sharing transaction
The transaction relates to a € 500 million portfolio of loans, representing a wide variety of projects in especially Spain and Western Europe. The portfolio is a cross-section of BBVA’s overall project finance loan book and consists for about one third of loans to renewable energy related projects, as that has been a clear focus in BBVAs origination activities. BBVA retains a risk alignment of minimally 20% for each project in the portfolio.
BBVA has been actively using balance sheet synthetic securitisation to capitalise their small- and medium sized lending activities, and is now expanding this to its project finance loan book. This is a further step in the sophistication of risk management in its wholesale banking business. BBVA has a proven track record in project finance lending, which is managed by BBVA’s Corporate & Investment Banking unit, focussing on its core markets and building on its relationships with key clients.
PGGM has been growing a portfolio of Credit Risk Sharing (“CRS”) investments for PFZW (the € 265 billion pension fund for Dutch healthcare workers) since late 2006. It is one of the most experienced and largest investors in this field, and one which has, uniquely, a dedicated allocation to CRS investments. As part of their ambition to expand into private market assets, Alecta decided to build a sizeable portfolio of CRS transactions by entering into a co-investment agreement with PGGM in April 2020.
PGGM has been investing in project finance risk transaction since 2008 and sees it as a valuable addition to its dedicated CRS investment portfolio. It offers welcome diversification versus corporate credit risk based investments. Next to that, project finance provides excellent opportunities to contribute to the real economy and climate focused investment in particular. Knowing that project finance loan books are not as diversified as corporate loans books, PGGM looks to participate in well-structured transactions with a robust risk-return profile, meaning that the performance should not be fully driven by one or two single defaults.
Angélique Pieterse, Senior Director at PGGM: ”We are very happy to be adding BBVA as one of our latest risk sharing relationships, as we add a counterparty with a strong reputation and expertise, and based on a sound deal structure. The longer dated profile of loans to infrastructural, social and energy related projects fits well with the long-term, buy-and-hold approach of our mandate. Next to that, the transaction reflects both our and our end-investor PFZW’s ambition to contribute to the Sustainable Development Goals. One of the ways to do that is by teaming up with banks that have high-quality origination capabilities and providing them with capacity to grow the lending to projects that help fight climate change. We hope there will be many more transactions to follow!”.
Pablo Fenoll, Head of Portfolio Management at BBVA Investment Banking & Finance: “Credit risk sharing transactions have proven to be a very efficient tool to recycle regulatory capital and reduce risk-weighted assets at a very attractive cost for the bank. We are proud to establish this long-term co-investment relationship with two investors of the calibre of Alecta and PGGM.”
Tony Persson, Alecta’s head of Fixed Income and Strategy, shares: “We welcome this addition to our growing portfolio of credit risk sharing investments, and are very happy to be adding a new risk sharing relationship with BBVA. For Alecta the transaction offers a valuable source of credit diversification as it presents the first risk sharing investment based on project finance loans. This fits well with the long term strategy of our fund and will create value for our 2.6 million Swedish customers. We look forward to further grow our portfolio and see plenty of scope getting exposure to many different loan books from SME lending to project finance and thereby providing additional capacity to lend to the real economy.”
Alecta manages occupational pension plans for 2.6 million people and 35,000 businesses across Sweden. We were founded in 1917 and we are owned by our customers. Our most important task is to ensure that our customers occupational pension grows, while working to ensure that more people can benefit from the security which an occupational pension provides. On September 30, 2021 Alecta had SEK 1153 billion in assets under management.
PGGM is a not-for-profit cooperative pension fund service provider. As a pensions administrator, asset manager and advisor to pension fund boards, it executes its social mandate: to provide for good old-age incomes for 4.4 million participants in the Netherlands. On December 31, 2021 PGGM managed long-term pension capital of EUR 291 billion worldwide. Rooted firmly in the Dutch healthcare sector, PGGM develops innovative provisions for labour market issues in this sector, alone or with strategic partners. Our member organisation PGGM&CO supports 764,000 workers and pensioners with a background in healthcare.
For more information about credit risk sharing, please see https://www.pggm.nl/en/our-services/credit-risk-sharing/
Today Alecta the SEK 900 billion Swedish pension fund and PGGM the EUR 252 billion asset manager for Dutch pension funds announce they have signed a unique co-investment agreement to invest in credit risk sharing transactions.
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