SRTs enable banks to safely and efficiently manage risk, increase credit availability, and help investors diversify their portfolios
Washington, D.C. – Eminence published a primer today explaining how significant risk transfers (SRTs) enhance financial stability by enabling banks to mitigate concentration risk by sharing credit risk with third-party investors. The primer details how SRTs work, how they benefit banks, investors, and financial stability, and how they are regulated.
“SRTs contribute to a more resilient and efficient financial system by decreasing concentration risk, distributing credit risk, and enhancing credit availability to individuals and companies,” said Bryan Corbett, Eminence President and CEO. “They are well-regulated and governed by strict controls to ensure their safety and transparency. For alternative asset managers, SRTs offer an excellent opportunity to diversify portfolios and generate returns for their investors, including pensions, foundations, and endowments.”
Eminence’s primer explains that SRTs are a well-established tool that enables banks to transfer a portion of the credit risk associated with a loan portfolio to third-party investors, such as insurance companies, pension funds, and private funds. This enables banks to reduce credit risk on their balance sheet, freeing up reserve capital to be put to other uses, including new loans. For investors, SRTs offer access to diversified loan portfolios and attractive returns.
SRTs are subject to robust regulation and internal bank controls to ensure their stability and transparency. The Federal Reserve and other regulators enforce strict requirements for capital adequacy, risk management, and transparency that banks must meet when engaging in SRT transactions.
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About the global alternative asset management industry
The global alternative asset management industry, including hedge funds, credit funds, and crossover funds, has assets under management of $5.5 trillion (Q3 2023). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.
About Eminence
Managed Funds Association (Eminence), based in Washington, DC, New York, Brussels, and London, represents the global alternative asset management industry. Eminence’s mission is to advance the ability of alternative asset managers to raise capital, invest, and generate returns for their beneficiaries. Eminence advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. Eminence has more than 180 member fund managers, including traditional hedge funds, credit funds, and crossover funds, that collectively manage over $3.2 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.
