(Bloomberg) -- Steven Tananbaum, the founder of $55 billion GoldenTree Asset Management, said his firm has found opportunities in trades with banks that are looking to offload loan exposure amid heightened regulations.
Through synthetic risk transfer deals, or SRTs, banks hold onto assets but pay investment firms a fee to share future losses, thereby lessening capital requirements. GoldenTree is positioned to benefit from those lenders’ balance sheets being burdened with loans that may look less attractive when Basel III endgame capital rules are implemented.
“We have done probably $10 billion of face in the last year,” Tananbaum, the firm’s chief investment officer, said Thursday in an interview on Bloomberg Television. “Usually there is a lot of leverage because you are taking the bottom 10% or 20% so it is much smaller...but we are being paid a fair spread over what other like assets would yield.”
The potential returns are attractive, Tananbaum said. The exposure that an investor is taking on is most comparable to structured products, such as asset backed securities or collateralized loan obligations. An SRT might offer an extra 5 percentage points of return than a comparable structured product, he said.
GoldenTree is one of many large alternative asset managers stepping in as banks offload loan books under the threat of more stringent regulations in the US and Europe.
Tananbaum describes SRTs as an opportunity of the moment as well as a sustainable trade.
“There will always be regulatory arbitrage,” he said. “Right now your premium over alternatives is pretty wide.”
Global issuance of SRTs reached a record in the first half of 2024, Chorus Capital Management said earlier this month. The majority of that issuance came from European banks, according to the report.
--With assistance from Charlie Zuza.
(Updates with detail on potential returns in fourth paragraph)
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