SCI CRT Awards 2020

SCI CRT Awards 2020

Friday 27 November 2020 10:15 London/ 05.15 New York/ 18.15 Tokyo

Investor of the Year: Alecta-PGGM

The coming together of Alecta and PGGM to focus on credit risk sharing transactions (CRS), as they term capital relief trades, is undoubtedly a major event for the sector. However, it is the sizeable voice they have created with the intention of influencing the adoption of high quality transaction standards and thereby stimulate the healthy growth of the market that makes the partnership SCI’s Investor of the Year.

On 20 April 2020, Swedish occupational pension manager Alecta and Dutch pension fund service provider PGGM entered into a co-investment agreement to invest in CRS. The move is believed to be the first time that two of the largest European pension schemes have co-operated in such a close and direct manner.

Martijn van der Molen, senior director, credit and insurance linked investments at PGGM, explains: “The main rationale for the partnership is all about helping the CRS market to grow in a sound and standard way, while supporting its long-term viability. It helps to have a like-minded large investor with the same principles and standards. By joining forces with Alecta, it allows us to grow in the space and increase diversification, all at a faster pace than we would otherwise be able to.”

Tony Persson, head of fixed income and strategy at Alecta, adds: “For some years we’ve been looking into the alternative investment space and to diversify out of our equity portfolio, but still with the need to generate equity like returns. To do so, we have been looking at a number of possibilities, but see CRS as a very important part of the fixed income space and a great fit with our requirements, including the ability to deploy in size.”

He continues: “However, the sector requires intense and detailed due diligence, which is challenging. As a result, it gives us a great deal of comfort to be allied with such a major and experienced investor in the space as PGGM and to be able to tap into its expertise and network.”

Both firms believe that collaborations such as theirs can be particularly beneficial in illiquid asset categories such as CRS, where the ability to leverage off each other’s knowledge, skills and networks can be a considerable advantage. In addition, the economies of scale allow for more flexibility in portfolio construction for both parties, all of which ultimately benefits the pension scheme members they serve.

Consequently, Alecta and PGGM hope that their initiative sparks more collaboration efforts in the pension fund industry. However, its reach could extend beyond that.

“CRS is important for society as a whole. It enables banks to increase their lending capacity, at a time when countries need it most due to the economic fallout from the Covid-19 pandemic,” says Persson.

“Our initiative substantially increases the amount of available capital to share in banks’ credit risks,” van der Molen concurs. “In a period where governments and central banks try to find ways to engage the private sector to help cushion the economic consequences from the pandemic, the Alecta-PGGM partnership offers a concrete opportunity to do this.”

The agreement signed between Alecta and PGGM is long term in nature. As part of the agreement, PGGM will purchase 70% of each new CRS co-investment and Alecta 30%.

PGGM remains responsible for the sourcing and proposing of new transactions. The relevant originating bank needs to confirm that it is comfortable for Alecta to participate before the firm can be involved.

Alecta has the right but not the obligation to participate in any CRS transactions proposed by PGGM. Alecta will not source CRS transactions itself and will only enter into a CRS transaction if PGGM invests.

Honourable mention: ArrowMark Partners
ArrowMark has been a consistent and respected investor presence in the capital relief trades market since 2010, when it began deploying capital in the sector. That consistency and acceleration of capital deployment in the face of pandemic-driven volatility is what has earned the firm this year’s honourable mention in the Investor of the Year category.

ArrowMark has been seen to be very active in all asset classes and markets throughout the awards year. Notably, the firm was able to quickly increase its focus in the secondary market, helping to bolster liquidity there as many stepped away from CRT primary and markets in general as the coronavirus crisis hit.

For complete coverage of SCI’s 2020 CRT Awards, click here.


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