Polar Asset Management Launches Credit Risk Fund to Tap Growing Market

Polar Asset Management raises $300 million for a new fund focusing on credit risk transfers amid growing bank interest.

By Max Weldon

5/15, 06:44 EDT

Key Takeaway

  • Polar Asset Management raises $300 million for a new fund focusing on credit risk transfers, tapping into a growing market segment.
  • The fund aims to engage with Canadian and global banks, leveraging Polar's $1 billion experience in credit-risk deals over eight years.
  • Leadership under Greg Lemaich and strategic appointments aim to enhance the firm's capabilities in originating beneficial transactions.

Polar Asset Launches Credit Risk Fund

Canada's Polar Asset Management Partners Inc. has successfully raised $300 million for a new fund dedicated to investing in credit risk transfers. This move taps into a burgeoning segment of the credit markets where banks are increasingly offloading risk. The Polar CRS Fund-1, standing for "credit risk sharing," aims to provide institutional investors with access to transactions involving both Canadian and global banks. This initiative marks what is anticipated to be the first among a series of similar investment vehicles, according to the Toronto-based firm.

Polar Asset Management's venture into credit risk sharing comes as Canada's major banks escalate their engagement in risk-transfer deals. These arrangements enable banks to transfer some of the risk associated with batches of loans to other investors, thereby liberating capital for new ventures. This strategy is partly in response to stricter capital regulations enforced by financial authorities.

Expanding Credit Risk Sharing

Over the past eight years, Polar has committed more than $1 billion to credit-risk transfers through its main multi-strategy fund, collaborating with banks across Canada, the UK, and Europe. The firm's optimistic outlook is supported by an October report estimating that Canadian banks could account for 10% to 15% of the global credit risk sharing transactions this year. Credit-risk transfers, also known as synthetic or significant risk transfers, are employed by banks to bolster their regulatory capital ratios without the need to issue equity or other securities. This is achieved by selling the risk on loan bundles to entities like private-lending and hedge funds through credit-linked notes.

The increasing prevalence of these deals highlights the banking sector's innovative approaches to comply with new regulatory demands for higher capital reserves. Notably, U.S. banks are bracing for the Basel Endgame rules, which will impose additional capital requirements, while Canadian banks have already begun adapting to similar regulatory adjustments.

Leadership and Strategy

Under the leadership of Polar President Greg Lemaich, the firm has developed significant internal credit underwriting expertise and fostered relationships with issuing banks. Lemaich emphasizes the importance of these capabilities in originating transactions that are beneficial for all parties involved. Furthermore, Polar Chairman Paul Sabourin, who recently reassumed his position as the sole chief investment officer following a period of underwhelming returns, has promoted three team members to deputy CIO roles to strengthen the firm's strategic direction. These appointments include Mike Beaton overseeing portfolio construction, Marina Lutova Meyers in charge of credit, and Bill Peckford leading equities.

Management Quotes

  • Greg Lemaich, President of Polar:

    "Polar has built internal credit underwriting expertise and relationships with issuing banks, both of which are critical to originate ‘win-win’ transactions."