The dealer’s role is one of arranger, sourcing risk and then placing it with investors. On the other side, the investors are also unlikely to be using credit models to make investment decisions, relying more on credit rating or less quantitative analysis (such as adverse selection mitigants or reputational risks).
The capital markets are witnessing a huge demand for credit risk of all types from a variety of bank and non-bank investors. In addition, investors (banks and non-banks) are expanding their credit assessment capabilities, and thus their ability to take on riskier credit investments (lower-rated tranches, lower-rated or difficult-to-analyse underlyings, or even full portfolios attaching at 0%). Spreads have continued to fall in many asset classes and parts of the capital structure as a result.
