SVB’s loan book and opportunistic fund managers – Validus Risk Management

Date: 24 Mar 2023

Vicente Luckina Bunn

Commenting on the opportunity for fund managers and institutional investors to acquire SVB’s loan book in the USA.

Commenting on the opportunity for fund managers and institutional investors to acquire SVB’s loan book in the US, Haakon Blakstad, Chief Commercial Officer at Validus Risk Management, said: “Silicon Valley Bank’s loan book in the United States provides an interesting opportunity to large private capital funds and certain institutional investors such as insurance firms. A large part of the book consists of financing facilities to funds, typically secured against investor commitments, which have different dynamics to typical corporate loans. For example, the duration of fund finance facilities are often short, with the expectation of annual renewals for example. As we see it, this leaves funds and institutional investors with two options as they consider buying this particular book of business:

• Buy the loan book at a discount and let it run off. However, given the nature of the loans and their short duration, selling the book at a discount now is unlikely to prove attractive. Having placed the assets of both SVB and Signature Bank in their respective bridge banks, The Federal Deposit Insurance Corporation is clearly aiming to ensure ongoing operations are maintained, in order to maximise the return on assets. Arranging a fire sale of the fund finance book at a discount doesn’t marry well with that strategy.
• Buy the loan book at some agreed fair value and manage the relationships to maintain, or even extend the book. This, however, would require a big operation (e.g., staff, system, etc.) which many non-bank buyers will not have—certainly not at this scale. As a result, it’s conceivable that Investors considering this option would likely be keen to also buy SVBs loan operations.

But a situation in which a fund manager acquires a loan portfolio from SVB where the borrowers are other funds (some of them likely to be their competitors) poses multiple questions, including how such a fund manager would structure the acquisition to avoid conflicts of interest.”

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