The good, bad and ugly of wholesale lending risk

Some forms of risk you want in your portfolio. Others, you should want no part of. When it comes to wholesale lending, bad risk generally means concentration, or idiosyncratic, risk. Not enough eggs in the basket, so to speak. Specific states, specific cities, and first home buyers are all examples of idiosyncratic risk - bad risk. You want to be exposed to the risk of the whole basket together, not the individual eggs within it. In this wire, Theo Calligeris dives deeper into the different forms of risk in wholesale lending, and how Realm Investment House goes about screening it out.

January 10, 2022 09:29

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Some forms of risk you want in your portfolio. Others, you should want no part of.

When it comes to wholesale lending, bad risk generally means concentration, or idiosyncratic, risk. Not enough eggs in the basket, so to speak.

“What you’re looking for is diversity within pools,” says Associate Portfolio Manager Theo Calligeris.

“That means, you’re looking to move away from the risk around any single borrower or any small group of borrowers.”

Specific states, specific cities, and first home buyers are all examples of idiosyncratic risk - bad risk.

What you want to do is turn idiosyncratic risk into systematic risk through diversification.

To return to the eggs and baskets, you want to be exposed to the risk of the whole basket together, not the individual eggs within it.

In this wire, Calligeris dives deeper into the different forms of risk in wholesale lending, and how Realm Investment House goes about screening it out.

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