Excess Spread — SRT revolution, stressed out, pipe dream
- Owen Sanderson
Private credit and SRT
That’s the two hottest markets of the moment, right? Everything from credit card lending to fund finance is getting a private credit themed rebrand these days, and even if LBO pricing has swung back in favour of the syndicated loan markets it doesn’t look like it’s going away any time soon. The rise and rise of SRT is a little more under the radar but it’s still been growing 18% per year since 2010, it’s larger than European CLOs, with total placed tranches of around $54bn, meaning portfolio notional of 10x than or more. Here’s a paper from Olivier Renault and the Pemberton risk sharing team making the case that total tranche placed size could reach $255bn by 2030
It’s not an aggressive assumption that requires faith in the US market opening; all you have to do is assume that banks already active in the market will extend their use of the tool. If every medium-large bank in Europe, never mind Japan, Canada and the US used SRT to the same extent as a Barclays, BNP Paribas or Santander, this thing will be spectacularly large.