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Debt funds

Inhalt
Key objectives of balance-sheet flexibility
Case study: Helaba debt fund platform
Key factors for sustainable success
Conclusion and outlook
Contact

Enhancing balance-sheet flexibility

The timely, reliable, and adequate supply of balance-sheet resources – capital and liquidity – is crucial for credit institutions to meet customers’ financing needs. However, navigating this task has become increasingly challenging due to rising capital requirements and volatile, complex financing needs of customers. Future client needs are expected to grow significantly due to investments required for the climate transition and digital transformation. To respond flexibly to these demands, banks must actively manage their balance sheets and credit portfolios. 

Key objectives of balance-sheet flexibility

 

Managing scarce capital resources

The finalization of the Basel III package, which will be mandatory for European banks from 2025, introduces the output floor and thus increases risk-weighted assets (RWA) for many large institutions. This necessitates careful management of regulatory capital to uphold lending capacity. 

Improving RWA productivity

Focusing on the ratio of operating results to RWA is essential. Institutions need to consistently manage RWA productivity to optimize return on equity (ROE), especially as many struggle to raise ROE above their cost of capital.

Managing risk concentrations

Active risk concentration management is crucial in a volatile macroeconomic environment. Stress tests and scenario analyses help assess portfolio risks and align risk and commercial appetite.

Innovative approaches for balance-sheet flexibility

To maintain critical customer relationships independently of capital and balance-sheet restrictions, banks must decouple total asset growth from new business growth. Effective instruments for this include:

  • syndication

  • securitization

  • portfolio sale

  • credit and political risk insurance (CPRI)

  • debt funds

The latter are less frequently used but can leverage institutional investors' risk capacity to finance borrowers.

“Debt funds offer banks a flexible way to deleverage their balance sheets while tapping new sources of funding, which is crucial in an increasingly regulated 
market environment.”
 

Jens Kuttig, Senior Partner

Case study: Helaba debt fund platform

Helaba launched a strategic project in 2021 to enhance credit portfolio management and strengthen balance-sheet flexibility. The project’s prime goal was to implement systematic and anticipatory portfolio management and expand the bank’s risk distribution. Key milestones included the establishment of the SICAV-RAIF umbrella platform launched in late 2023, with the first infrastructure debt fund closed in November 2023. 

Debt fund closing process:

  • Portfolio analysis

  • Business case analysis

  • Market sounding

  • Transaction design

  • Involvement of external parties

The “Infrastructure debt fund I” was closed in a record time of three months. Helaba retains a significant share of the renewable and digital infrastructure exposures, ensuring a high diversification within the funds. This strategy offers attractive economics and flexibility, while supporting larger loan amounts and strengthening customer relationships. 

Key factors for sustainable success 

a handshake with blue lines
Senior management buy-In


consistent support is crucial for establishing a debt fund platform

Sprechblase
Early investor communication

 

balancing supply and demand side interests and regulatory requirements is essential

Regulatorische Anforderungen
Tangible deal parameters

 

securing investor commitments based on a real-deal pipeline is crucial

Zahnrad
Preparation of processes and infrastructure

 

meeting internal prerequisites and integrating agency functions early on

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Targeted transaction structure
 

aligning the deal structure with the overall debt fund strategy

Puzzleteile
Flexible design

 

customizing the platform to meet individual investor interests and requirements

Conclusion and outlook

Enhancing balance-sheet flexibility through a balanced range of risk distribution channels is recommended to sustain RWA relief. Structured implementation and perseverance are essential for a successful debt fund platform setup. Helaba aims to leverage its new platform to achieve a target volume of around EUR 200–500 million per debt fund, thus expanding its private debt investment strategy. This initiative represents a significant turning point for the German and European banking landscape, likely inspiring similar initiatives from other institutions in the near future.

Feel free to contact us

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Jens Kuttig

Senior Partner
Profilfoto_Rittershaus_Gunnar.jpg

Gunnar Rittershaus

Manager