Winner: PGGM

Even by its own very high standards, the 2021/2022 awards year was a busy one for the winner PGGM. The firm further enhanced its reputation as one of the most experienced and largest active end-investors in credit risk sharing (CRS) transactions worldwide. PGGM saw record high transaction activity in the year, while continuing to innovate and engage with regulators.

Since September 2021, PGGM has closed 12 transactions, including eight transactions in 2022, for a total amount of €2.2bn capital and €33.6bn of underlying loan notional. Five of those transactions were labelled as STS, in which PGGM invested €1.1bn with a total underlying loan notional of €19.8bn.

This represented record high transaction activity for the firm in any 12-month period and included transactions representing large investments with long-term strategic partners, as well as new partnerships. Further, many were considered landmark transactions in their own right, such as:

• The K2 transaction with the Polish mBank, which resulted in the first STS synthetic securitisation from Poland;
• BBVA’s inaugural project finance transaction – Verano I, referencing around one-third of renewable assets;
• Sumeru IV with Standard Chartered Bank – the first transaction to achieve capital relief in Hong Kong;
• Resonance 7 with BNP Paribas – the largest STS transaction to date;
• Sisu – the first Nordic STS transaction with Nordea;
• The first STS synthetic securitisation by Landesbank Hessen-Thüringen Girozentrale (Helaba).

“We find it important to be there for our risk-sharing partners, both in good and bad times,” says Barend van Drooge, deputy head credit & insurance linked investments at PGGM. “We have demonstrated that during the global financial crisis of 2008, the Covid-19 crisis and we continue doing so during the current situation of inflationary pressures and geopolitical unrest as well.”

He continues: “We manage to do this by staying close to the way the bank manages its loan book and by agreeing realistic constraints on the eligibility and portfolio criteria to that effect. Furthermore, we incorporate macroeconomic expectations into our modelling to adequately price the risk. We have thus managed to find an acceptable balance between our interests and those of our risk-sharing partners and agreed mutually workable transactions.”

The firm believes that its mission is to apply its investment expertise to build and maintain a portfolio that generates attractive risk-adjusted returns under different economic scenarios, while providing diversification to the overall portfolio of its sponsor, healthcare pension fund Stichting Pensioenfonds Zorg en Welzijn (PFZW). To achieve this mission, PGGM follows three core investment tenets:

• Risk sharing in core activities of market leaders to ensure continued dedication and focus on prolonging success.
• Being a reliable risk-sharing partner that values alignment of interest to ensure continuing prudent origination and risk management by the bank through the cycle.
• Bilaterally negotiated investments of significant size, resulting in high-quality transactions at low cost.

“The CRS mandate fits within our broader ambition to contribute to a sustainable financial system. By engaging in CRS transactions, we help the banking sector to manage credit risk efficiently, and the financial sector by reducing systemic risk,” van Drooge explains. “This is particularly relevant at times of the uncertain post-pandemic economic recovery, which is put under pressure by high inflation, disrupted supply chains and the war in Ukraine.”

On average, PGGM’s CRS portfolio has returned over 11% per annum since its inception and is well in excess of its long-term return target. Unsurprisingly, sponsor PFZW is highly supportive of the CRS strategy, given that it has realised an equity-like return with lower volatility than public equity, while generating stable cashflows. The pension fund views CRS as both diversifying and complementary to its other investments.

Indeed, the CRS mandate has demonstrated resilience through past economic challenges, including the GFC and Covid-19 pandemic. The strategy performed well during downturns in public markets, especially at times when the common stock of PGGM’s risk-sharing partners was under pressure.

At the same time, PGGM continues to focus on regulatory engagement. As a pension fund asset manager, it has a long-term investment horizon and consequently needs to try to ensure the long-term viability and sustainability of the CRS market.

The firm believes that this objective is only achievable if a balance is found between the long-term interests of banks, investors and regulators. As a result, it has for many years been a vocal advocate for harmonisation of practices, appropriate standards for healthy transactions and transparency, through active dialogue with regulators, industry bodies, banks and investors.

“We further contribute to roundtables and consultations and publish our opinions where we believe this adds value,” van Drooge says. “Throughout the last 12 months, as in previous years, we have been engaged in responding to public consultations, in workshop presentations for European and international regulators, in discussions on opening new markets for CRS transactions, as well as discussing topics of interest, such as the STS Securitisation framework for CRS in the context of the EU Capital Markets Union Initiative and more recently on the EU Taxonomy, SFDR and Green Bond Standard.”

Looking ahead, PGGM’s commitment to market innovation and growth is unlikely to diminish. “Given our size and presence in the CRS market, we contributed greatly to shaping the market in areas such as transaction structure, robustness and due diligence standards,” says van Drooge. “We will continue to do so and actively engage in such areas as industry forums and regulatory debates.”

Honourable mention: Whitecroft Capital Management
In recognition of the firm’s continuing consistent, disciplined and stable performance, even in difficult market conditions, implementing a unique investor offering with one of the most diverse portfolios in the capital relief trade sector. Whitecroft has built on its track record of building innovative investment products by partnering with Copenhagen Infrastructure Partners to launch a climate-friendly SRT fund dedicated to renewable energy infrastructure, aimed to raise capital for what the firm believes to be a rapidly developing capital relief market.

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.