PGGM, which invests in SRTs on behalf of PFZW (a pension fund for Dutch healthcare workers), is known to have stringent criteria for SRTs. This includes a requirement that there is a 20% alignment of interests with banks, which take exposure on each loan default in an SRT. Ordinarily, banks retain senior tranches of SRTs and offload junior tranches to third-party investors. PGGM refers to its deals as ‘risk sharing transactions’. “Our partnership with Alecta frees up capital for us to reinvest in SRTs, but as we continue to grow the portfolio anyway, that was not our primary motivation,” says Mascha Canio, head of credit and insurance-linked investments at PGGM in Utrecht. “We want to help set standards for the industry and partnering with a like-minded investor helps propagate that message.”

The SRT market took another step towards standardisation as the European Banking Authority published its final report on the framework for simple, transparent and standardised (STS) synthetic securitisations on 6 May. Creating a high-quality STS label will help get investors more comfortable with SRTs, says Canio. One of the most attractive qualities of SRT investing is the embedded diversification: securitisations can have exposure to over a thousand credits. “You can take risk on a bank’s core list of clients,” says Tony Persson, Alecta’s head of fixed income and strategy. “Some of these credits do not exist in the high yield bond or syndicated loan markets.”