Polar Asset raises $300M for credit trade fund
To specialize in risk-transfer deals with banks
Canada’s Polar Asset Management Partners Inc. raised US$300 million for a fund that will invest in credit risk transfers, taking advantage of a trend that sees banks offloading risk into a fast-growing corner of the credit markets.
The fund offers institutional investors a way of participating in the transactions with Canadian and global banks, according to a statement seen by Bloomberg. Polar CRS Fund-1 — the acronym stands for “credit risk sharing” — is likely to be the first in a series of similar vehicles, the Toronto-based firm said.
Canada’s biggest banks have ramped up the use of risk-transfer deals, which allow them to pass along some of the risk on batches of loans to other investors, freeing up capital for new business. It’s partly a response to tougher capital rules imposed by regulators.
Polar has funded more than US$1 billion in credit-risk transfers in its main multi-strategy fund with banks in Canada, U.K. and Europe over eight years, and it’s bullish on doing more. In a report published in October, the firm estimated that Canadian banks may represent 10 to 15 per cent of global credit risk sharing transactions this year.
Banks use credit-risk transfers — also known as synthetic or significant risk transfers — to prop up their regulatory ratios of capital to risk-weighted assets without having to issue equity or other securities. They do it by selling the risk on bundles of loans to private-lending and hedge funds through credit-linked notes.
A surge in the deals in recent years illustrates how banks are finding creative ways to tackle new rules that require them to hold more capital. U.S. banks face billions of dollars more in capital measures under a set of rules known as Basel Endgame, while Canadian regulators have already enforced many of those changes.
“Polar has built internal credit underwriting expertise and relationships with issuing banks, both of which are critical to originate ‘winwin’ transactions,” Polar president Greg Lemaich said in the statement.
Polar chairman Paul Sabourin — who took back the role of sole chief investment officer last year after a period of disappointing returns — recently elevated three members of his team to deputy CIO roles. Mike Beaton is head of portfolio construction, Marina Lutova Meyers runs credit and Bill Peckford leads equities, according to a letter from Sabourin announcing the changes last month.
Polar Asset managed US$6.4 billion as of April 30 across four strategies, including a multi-strategy fund, a long-short fund and microcap fund.