Hedge fund Seer Capital Management LP is ramping up purchases of significant risk transfers (SRTs) as it seeks to appeal to investors looking for loan exposure without taking on the full risks of direct private credit, according to a report by Bloomberg.
The New York-based firm already allocates more than half of its $1.1bn in assets under management to SRTs, and managing director Terry Lanson indicated that this weighting is expected to increase.
Investor interest in private credit and business development companies (BDCs) has cooled in recent months amid markdowns in assets tied to vulnerable industries, particularly sectors affected by rapid advances in artificial intelligence. Against this backdrop, SRTs—structures where banks transfer a portion of credit risk on a pool of assets to third-party investors—offer an attractive alternative. They provide exposure to banks’ core lending activities while mitigating some of the downside risk associated with direct loans.
Seer Capital has highlighted that the increasing use of SRTs to bolster bank regulatory capital encourages lenders to select higher-quality reference assets, reducing default risk relative to broader loan books. The hedge fund noted that more than 90 SRT investments since 2009 have performed well, reinforcing the case for the instruments as a lower-risk route into private credit exposure. “Lenders’ reliance on SRTs in adjusting their regulatory capital makes them aligned with investors in wishing for strong credit performance,” the firm said.
Regulatory scrutiny of the asset class is intensifying, however. The European Central Bank has signaled it will step up monitoring of SRT issuance, while the Basel Committee on Banking Supervision has been conducting a “deep-dive” into the structures amid a spike in activity.
Seer Capital’s pivot comes as private credit investors continue to pull capital from vehicles holding direct loans, driven by lower returns and heightened concerns over credit quality in the $1.7tn market. Alternative asset managers, including Blue Owl Capital Inc, have also faced pressure, with valuations of technology firms financed through private credit falling amid market volatility and AI-related disruption.
