PGGM, the €182bn asset manager, has entered into a risk-sharing deal with Spain’s Banco Santander related to a €2.3bn portfolio of small-business loans. PGGM said the deal, made on behalf of the €161bn healthcare pension fund PFZW, provided access to a credit-risk portfolio, further diversifying the scheme’s asset mix. It said the deal – involving a portfolio of more than 6,000 loans to Santander’s clients in Spain – would generate a “stable and robust” return. Since 2006, the asset manager has made similar risk-sharing deals with a number of banks on several continents, including Rabobank, Citibank and Credit Suisse. PGGM spokesman Maurice Wilbrink said the asset manager had invested more than €5bn in such deals to date, and that annual net returns, through illiquidity premiums, had been 10% on average. He added that the Santander deal was the third of its kind, and that, out of a total of 30 transactions so far, five had been done in 2014 and eight in 2015. “As part of the deal, the asset manager is to take the first loss,” he said. “But, because the synthetic portfolio remains on the bank’s balance sheet, the bank has a large stake in managing the credit risk, which adds to the security of the investment.” Wilbrink declined to specify the amount agreed for the first loss, or the duration of the contract. He said, however, that several prior transactions had been extended. Mascha Canio, PGGM’s head of credit and insurance-linked investments, said the Santander deal showed how a Dutch pension fund could co-operate with banks to stimulate SME business investments in the European economy. She added that, in light of the European Commission’s legislative proposal on securitisations, where it calls for preferential regulatory treatment of simple, transparent and standardised (STS) securitisations as part of the introduction of the Capital Markets Union, “this transaction supports the relevance of synthetic securitisations next to true sale securitisations”. Pablo Roig, CFO at Santander Spain, said the deal would help the bank manage its exposure in the SME sector and “recycle the freed-up assets in new lending to this strategically important client base in Spain”.
Dutch pension fund manager, PGGM, has completed a €2.3bn trade to insure loans of Santander, in a deal that highlights the growing appeal of exotic financial instruments in a world of ultra-low interest rates. The "synthetic" securitisation deal will involve PGGM selling credit insurance against potential losses on a portion of more than 6,000 Santander loans to small and medium enterprises (SMEs).