Over the past few years, the significant risk transfer (SRT) market has shed its reputation as a niche corner of finance to become a “mainstream” asset class. But is that growth expected to plateau any time soon?
The modern SRT market emerged in the aftermath of the 2008 global financial crisis and spent years developing as a niche market. “But the niche status disappeared in 2024 with the entrance of new investors, new issuers and pick-up in general interest in the sector,” said Luca Giancola, structured credit portfolio manager at Polus Capital Management, an investment firm specialising in alternative credit.
Overall, the SRT market has doubled in size since 2020, according to recent research.
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“There are a lot more people that look at SRTs now than three years ago,” Giancola told Alternative Credit Investor.
However, when markets become mainstream, some managers tend to leave the space. While Polus has been active in SRTs since 2017, Giancola said that the continued supply has supported the firm’s long-term focus in the area.
Alongside this, Giancola argued the market is still at least five years away from reaching its peak.
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“The capital angle is still there, and that alone can drive another five years of solid growth,” he said. “Five years from now, we expect this is where the asset class may start to be hit by headwinds from deregulation and the market growth rates might peak as we near this point.
“But, that doesn’t mean the market will stop growing. It will grow at a single-digit rate linked to how fast the asset books will grow on banks’ balance sheets.”
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