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The Hedge Fund Veterans Delivering Capital Relief to Banks, With an ESG Twist

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The Hedge Fund Veterans Delivering Capital Relief to Banks, With an ESG Twist

Banks are increasingly transferring credit risk to less regulated investors through synthetic risk transfers (SRTs). In response, buyers of these deals are now requesting an additional feature: sustainability. Newmarket Capital, an alternative asset manager, has seen a significant increase in demand for SRTs with environmental or social impact overlays. In order to meet sustainability goals, banks are excluding certain assets, investing capital in new ESG-themed loans, or creating transitional portfolios. The trend of incorporating sustainability into SRTs is expected to continue, with estimates showing an increase in the percentage of sustainability-linked SRTs in recent years. However, the lack of standardization around ESG integration and labeling in the SRT market could hinder its growth.

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