Polar Asset Management Partners is building a mortgage lending and securitization business in Canada to capitalize on a growing pool of borrowers that don’t fit into the country’s traditional banking system.
Polar's Inaugural Bond Sale
The hedge fund plans to sell as much as $500 million in a bond backed by residential mortgages it issued known as Alt-A loans, according to people familiar with the matter. Those loans are made to borrowers with relatively high credit scores, but who may not meet all of Canada’s requirements for prime loans because, for example, they’re self-employed with irregular income.
The inaugural transaction is targeted for the third quarter, the people said, asking not to be identified as they aren’t authorized to speak publicly. A representative for Toronto-based Polar declined to comment.
New Direction for Polar
The strategy marks a new direction for Polar, which has historically invested in Canadian residential mortgage-backed bonds but has expanded into home lending and securitization. The move echoes a similar strategy from Blackstone Inc., which sells Canadian mortgage-backed bonds.
Polar, which manages about US$5.7 billion, launched the strategy in late 2024 through a partnership with digital lender Nesto Inc. It has since originated more than $500 million in mortgage loans, one of the people said.
Structural Gap in Lending
Alternative lending is playing a bigger role in Canada, where an affordable-housing crisis and tight lending guidelines have sidelined some borrowers who have strong credit profiles but can’t pass mortgage stress tests and rigid loan-to-income measures. Many are self-employed professionals, business owners and other borrowers with complex income structures who struggle to qualify under the increasingly restrictive rules despite having the ability to repay.
Polar isn’t the only firm to capitalize on this emerging structural gap. Last year, Bank of America Corp. sold a $200 million bond backed by Alt-A Canadian residential mortgage loans in a deal that drew orders almost three times the size of the offering.
Popularity of Asset-Backed Securities
Asset-backed securities such as RMBS are increasingly popular in Canada. These deals are typically divided into multiple tranches. The safest portions attract investment-grade buyers, and the riskiest part appeals to investors looking for yield that can stretch into the double digits.
Polar intends to keep the lowest-ranked portion of the transaction, where it sees the most attractive risk-adjusted returns, the people said.
Details of the First Transaction
It’s planning for the first transaction, known as WBRMBS 2026-1, to be backed by about 700 mortgages with an expected pool balance of about $400 million. Investor demand is expected to come primarily from Canadian pension funds, life insurers and bank treasury desks, with some interest also emerging from United States investors, according to one of the people.
Polar has secured lending facilities from Bank of Nova Scotia and Bank of America to support its mortgage strategy, the people said. The banks both declined to comment.
Eventually, Polar aims to bring RMBS transactions to market roughly twice a year.
