This practice allows private market funds to boost returns by leveraging debt rather than waiting for investor capital calls. However, it creates a distinct risk profile for lenders like Goldman Sachs. The loans backing this planned SRT deal are known as subscription lines of credit. By selling an SRT bond tied to these specific loans, Goldman is effectively insuring itself against the possibility that these funds will fail to repay the lines when investors demand their capital back.

Sources indicate that the notes associated with this Goldman Sachs deal are likely to be priced at less than 500 basis points (5 percentage points) above a benchmark rate. This pricing reflects the current market appetite for such instruments and the perceived credit quality of the underlying private market portfolio. Deal terms remain under discussion with potential investors, who have requested anonymity due to the private nature of the negotiations.

The broader context for Goldman's move is regulatory pressure. SRT transactions have become increasingly popular in recent years, driven largely by European banks historically, but future volume growth is expected to be dominated by Wall Street firms. This shift is partly a response to additional regulatory capital requirements stemming from the so-called Basel III Endgame rules. These regulations aim to make bank capital more resilient to economic stress, pushing institutions to find ways to reduce the capital charges associated with their loan books.

Market data suggests that demand from large private- and structured-credit funds has helped narrow SRT premiums by at least 200 basis points from the peak seen in 2022. While yields on SRTs frequently topped 10% previously, the influx of institutional demand has moderated these returns slightly. Goldman Sachs is not alone in this strategy; JPMorgan Chase and Wells Fargo have also sounded out investors on similar deals, indicating a sector-wide trend toward utilizing SRTs to manage balance sheet constraints.

Morgan Stanley: Hedging the AI Infrastructure Boom

While Goldman focuses on private markets, Morgan Stanley is targeting a different but equally high-stakes sector: artificial intelligence infrastructure. As a key player in financing the AI race, Morgan Stanley holds significant exposure to data-center development and has been actively involved in major financing deals for tech giants like Meta Platforms Inc. In October alone, the bank arranged over $27 billion of debt and about $2.5 billion of equity financing for a special-purpose vehicle tied to Meta's Hyperion data-center site in Louisiana. Additionally, Morgan Stanley led recent junk-bond offerings from companies such as TeraWulf Inc., Cipher Mining Inc., and Applied Digital Corp., with proceeds earmarked for constructing new data-center facilities.

Morgan Stanley is now considering offloading some of this data-center exposure via an SRT. The bank has held preliminary talks with potential investors regarding a portfolio of loans to businesses involved in AI infrastructure. This represents a nascent slice of the credit-risk transfer market, where banks hedge their credit exposure and manage capital ratios by selling credit-linked notes to institutional investors.

The strategic imperative for Morgan Stanley is clear. Strategists at the bank forecast that big cloud computing companies will spend approximately $3 trillion on data-center infrastructure projects through 2028. Cash flow from these operations can fund only about half of that expenditure, with the remainder raised via debt markets. This lending surge may leave banks overexposed to a small group of highly leveraged companies. Furthermore, the cost of protecting debt against default has spiked recently for major borrowers like Oracle Corp., which has borrowed tens of billions and tethered its fortunes to the AI boom. Banks financing these construction loans are facing rising protection costs, making SRTs an attractive vehicle to mitigate this risk.

Morgan Stanley is also exploring other ways to hedge or syndicate part of its data-center risk, though there is no guarantee that the early-stage SRT talks will result in a finalized deal. The bank's involvement highlights how SRTs are evolving beyond traditional corporate lending into specialized sectors driven by technological disruption. Citigroup Inc., JPMorgan Chase & Co., and Goldman Sachs Group Inc. are also among US banks that marketed SRT deals in 2025, confirming that this is a coordinated industry response to regulatory and market pressures.

Market Outlook and Regulatory Drivers

Global sales of SRTs are expected to expand by an average of 11% annually over the next two years, according to a Bloomberg Intelligence survey published in June. This growth trajectory underscores the increasing reliance on these instruments for capital management. The primary driver remains regulatory compliance; as Basel III Endgame rules tighten capital requirements, banks must find efficient ways to reduce the risk-weighted assets associated with their loan books without necessarily exiting the market entirely.

The structure of an SRT typically entails a bank earmarking a pool of loans on its balance sheet and buying credit default protection on the first 5% to 15% of losses of that pool. That purchase is often made through selling a credit-linked note to investors. Investors usually receive a floating-rate coupon, offering a fixed premium above the Secured Overnight Financing Rate (SOFR). Historically, yields on SRTs have been attractive, frequently topping 10%, though premiums have narrowed as demand from large private- and structured-credit funds has increased.

Both Goldman Sachs and Morgan Stanley are leveraging these sophisticated financial engineering tools to maintain their lending capabilities in high-demand sectors while adhering to stricter regulatory frameworks. Whether it is the subscription lines of credit fueling private equity returns or the massive capital requirements for AI data centers, banks are using SRTs to transfer risk off their balance sheets, ensuring they remain agile enough to continue financing the future of finance and technology.