News Digest: Regulatory Capital Funds Poised for Growth Amid Basel III Tightening
February 5, 2025
News Digest:
The significant risk transfer (SRT) market is set for major expansion in 2025, as Basel III Endgame regulations drive up U.S. banks’ capital requirements. Historically dominated by European banks, SRTs allow financial institutions to offload credit risk and optimize capital efficiency. However, with the Federal Reserve’s approval of SRT deals in September 2023, U.S. banks are now accelerating their participation, accounting for 31% of global issuance in 2024.
Previously an opportunistic play for long-short credit hedge funds, private debt managers are now launching dedicated SRT funds to capitalize on the anticipated surge in issuance. Total outstanding SRT volume increased 40% year-over-year, reaching $70 billion in 2024, with projections of $130-$150 billion by 2030.
Notably, Chorus Capital and Axa IM Alts each closed record $2.5 billion SRT funds in 2024, while at least four other managers are raising $1 billion+ vehicles. Additionally, CCS Partners, led by Robert Kinderman and Randy Takian, secured $4 billion for its debut fund, heavily allocated to SRTs.
With demand for risk transfer expected to rise further in 2025, the SRT market is primed for continued rapid expansion, creating new investment opportunities in regulatory capital funds.