Structuring Resilience: How Risk Transfer Deals Thrive in a Fractured World

As global supply chains fray and tariff wars redefine capital flows, investors are turning to risk transfer deals—complex financial instruments that offload uncertainty— to navigate deglobalization. Apollo Global Management's “investment du jour” offers a blueprint: structured credit instruments like collateralized loan obligations (CLOs) and insurance-linked securities (ILS) are emerging as asymmetric opportunities in a world where geopolitical fragmentation demands asymmetric risk mitigation.

The Rise of Risk Transfer as Strategic Defense

Apollo's focus on risk transfer mechanisms—such as pension risk transfer deals for corporations—reflects a broader shift. Companies, burdened by defined benefit pension liabilities, are partnering with firms like Apollo to offload these risks in exchange for upfront capital. For example, Apollo's Athene unit has secured billions in such deals, enabling clients to focus on core operations while investors gain stable, long-duration cash flows.

But the real edge lies in structured credit, where Apollo's expertise in ILS and private credit is creating outsized returns. Consider their $500 million investment in Chesterfield Re, a subsidiary of RGA, which paired surplus notes with life insurance liabilities. This structure—akin to a “sidecar” in reinsurance—freed capital for RGA to grow, while investors earned 7.125% over 18 years. Such deals exemplify how risk transfer converts macroeconomic risks (e.g., longevity, inflation) into structured, low-volatility returns.

Hong Kong: The Asian Hub for Capital Flight

Hong Kong's role as a gateway for risk transfer deals is critical to this strategy. The city's HKEX IPO market, projected to raise over HK$200 billion in 2025 (up 711% year-on-year), is attracting firms from tech to new energy sectors. ****

The Tech Fast Lane reforms and Wealth Management Connect expansions are accelerating this trend. By easing listings for biotech and EV firms, and enabling cross-border wealth products, Hong Kong is positioning itself as the de facto hub for Asian risk transfer. For instance, China's CATL spinoff and Chery's EV ventures—listed on HKEX—offer investors exposure to sectors insulated from trade wars.

The Case for Structured Credit in a Fractured Economy

1. CLOs: Capitalizing on Fragmentation
   While Apollo's direct CLO issuance in 2024–2025 remains opaque, broader trends are clear. Rising interest rates and market volatility have spurred demand for middle-market CLOs, which bundle loans from smaller, geographically diversified firms. These instruments thrive in fragmented economies, offering senior tranches with AAA ratings and junior tranches for yield-seeking investors.

2. ILS: The New Safe Haven
   Apollo's ILS deals, like those with Chesterfield Re, illustrate how insurers and reinsurers are using capital markets to hedge against catastrophes. As climate risks intensify, ILS issuance is expected to grow from $8 billion to $100 billion by 2030, with Hong Kong's Energos Infrastructure (a joint venture with New Fortress Energy) leading the way in energy security.

Risks and Regulatory Realities

The path is not without pitfalls. Regulatory shifts—such as the SEC's Rule 192, which bans conflicted transactions in securitizations—force firms like Apollo to refine compliance. Meanwhile, geopolitical risks, including U.S. sanctions on Chinese firms like CATL, could disrupt Hong Kong's IPO pipeline. Investors must also contend with stagflation, which Apollo's Chief Economist Torsten Slok warns could persist as the Fed keeps rates high.

Investment Strategy: Allocate, Diversify, and Look East

• Focus on firms with cross-asset risk expertise: Apollo's hybrid credit platform, now managing $40 billion, is a prime example.
• Leverage Hong Kong's liquidity: Invest in HKEX-listed structured products tied to sectors like EVs or renewable energy.
• Prioritize ILS over CLOs for now: Until CLO issuance stabilizes post-regulatory changes, ILS' insurance-linked cash flows offer safer asymmetry.

Conclusion

In an era of deglobalization, risk transfer deals are more than financial engineering—they're strategic weapons. By pairing Apollo's risk-mitigation prowess with Hong Kong's capital markets dynamism, investors can turn fragmentation into opportunity. The question is no longer whether to embrace structured credit, but how to do so wisely.

Final note: Monitor HKEX IPO trends and Apollo's regulatory adaptations closely. The next risk transfer boom may already be underway.