Summary
- Pension funds, insurers, and hedge funds are taking on the first losses of loan failures of banks worldwide through synthetic risk transfers (SRTs).
- Blind pools, which include loans to consumers and industries that may not meet ESG criteria, have become more popular in SRTs.
- Buyers of blind pools receive only a negligible premium for the added risk, with demand for SRTs remaining strong.
- SRTs are privately negotiated, requiring buyers to assess the likelihood of default and ensure compliance with ESG guidelines.