Sector developments and company hires

ESG incorporation challenges highlighted
The Principles for Responsible Investment (PRI) has published a report that examines the challenges associated with incorporating ESG in securitised products. The report notes that investors are grappling with two issues: building a rigorous framework for assessing ESG factors in mainstream securitisations and enhancing credit risk assessment beyond traditional fundamental analysis; and promoting standards within the nascent ESG securitisation market to ensure its veracity.

Among the report’s key findings is that client demand, risk management and the desire to have a more positive environmental and societal impact are driving ESG considerations in securitised products. Regulation is also influencing investor behaviour, as lawmakers focus on improving ESG disclosure and standardisation throughout financial markets.

However, while investors’ fixed income ESG policies are expanding, they are typically not yet tailored to securitised products. The PRI report suggests that most investors are exploring how they can adapt and apply the ESG incorporation practices used with other types of debt instruments to these products.

A lack of adequate data to conduct ESG due diligence appears to be the main challenge preventing many investors from systematically integrating ESG factors in their securitised products analysis.

Negative screening remains the most widely adopted incorporation approach for European ESG-labelled CLOs. But the legal documentation accompanying them is not harmonised; CLO managers’ ESG evaluation processes are vague and – for now – little price differential versus mainstream products exists.

In other news…

Blockchain fund launched
Von der Heydt Asset Servicing and Immutable Insight Capital Management have partnered to securitise the blockchain fund, Blockchainfonds II. By securitising a blockchain fund, investors can invest in a crypto-asset alternative investment fund via a custodial security.

The fund aims to deliver a superior risk-return profile in crypto and tokenised assets on the basis of the analytics performed in-house at Immutable Insight. The strategy is based on real-time analyses of how blockchains are being used.

Bankhaus von der Heydt is handling the financial commission business for the crypto and tokenised assets and will then hold them in custody as a regulated crypto custodian. GSK Stockmann advised von der Heydt and Immutable Insight on project implementation in Germany and Luxembourg.

ILS options expanded
Leadenhall-backed Nectaris Re, a Bermuda-based Class 3A reinsurance company, has obtained a financial strength rating of A (Excellent) and a long-term issuer credit rating of ‘a’ from AM Best. Nectaris’ initial focus will be primarily to underwrite non-life reinsurance and retrocessional covers and to cover the risk using collateralised capacity from funds and segregated accounts managed by Leadenhall, net of any hedging and retrocession.

Nectaris is managed and administered by Horseshoe and will be joined on a part time basis by Leadenhall’s Ben Adolph as a director, acting as Nectaris Re’s head of underwriting. He will also remain an employee of Leadenhall Capital Bermuda and is a managing partner of Leadenhall Capital Partners, where he is head of non-life portfolio management.

Nectaris Re will complement the transactional options available to Leadenhall in building a broad book of insurance-linked relationships, including collateralised insurance-linked investments and transactions written in cooperation with and via the firm’s joint venture partners at MS Amlin.

Nectaris Re sits alongside Horseshoe Re II, a segregated cell company supported by capacity from Leadenhall funds and segregated accounts, which can provide direct collateralised cover to those counterparties interested in having the direct benefit of high-quality collateral posted in trust accounts. Horseshoe Re II is also expected to provide fully collateralised cover to Nectaris Re to support its underwriting.

First SDR registered
The US SEC has approved the registration of its first security-based swap data repository (SDR) - DTCC Data Repository (US) (DDR). DDR intends to operate as a registered SDR for security-based swap transactions in the equity, credit and interest rate derivatives asset classes.

This action sets 8 November 2021 as the first compliance date for Regulation SBSR, which governs regulatory reporting and public dissemination of security-based swap transactions. A key component of the Dodd-Frank Act, Regulation SBSR provides for the reporting of security-based swap information to registered SDRs and for public dissemination of transaction, volume and pricing information.

UCITS partnership agreed
Schroders has launched the Schroder GAIA Oaktree Credit fund, a global multi-strategy credit portfolio that offers investors access to high-conviction liquid credit opportunities. Investors will now be able to access Oaktree Capital Management's global credit strategy through Schroders' alternative UCITS platform.

The Oaktree strategy - which was launched in 2017 - has over US$5.3bn of assets under management, as at 31 December 2020. The fund will harness Oaktree's extensive credit expertise to create a highly diversified liquid portfolio that invests across US and European high yield bonds, corporate and real estate structured credit, emerging markets debt and global convertibles.

Oaktree co-chairman and cio Bruce Karsh will be the lead manager of the fund, alongside md and co-portfolio manager David Rosenberg. The launch of this scalable fund marks the beginning of what Schroders expects will be a long-term partnership between the two firms, building on Oaktree's suite of liquid and illiquid credit capabilities.