African Development Bank turns to hedge fund to offset risk

The African Development Bank is paying a New York hedge fund to take on some of the risk of losses on its loans in a pioneering deal which illustrates the growing financial sophistication of supranational institutions. 

The AfDB has bought insurance on a $1bn portfolio of loans from a group of investors led by Mariner Investment Group through a so-called synthetic securitisation, in which the hedge fund does not acquire the assets but will take on $152m of default risk in exchange for returns in the low double digits. 

Supranational organisations, which are backed by groups of nations and so enjoy the world’s highest credit ratings, are under pressure from the governments that fund them to seek new ways of bolstering their lending capacity.

By turning to Wall Street to take on some of…

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