What is securitisation?
Securitisation is the issuance of tradable financial instruments backed by a single asset or a group of assets. Through securitisation, assets receive an additional layer of accessibility in the financial markets, allowing for the funding of an investment strategy, or for financing based on an organisation’s creditworthiness, cash flow and/or collateral. The result of securitisation is a tradable financial instrument that can be purchased globally through brokerage accounts.
One of the primary reasons for the growing popularity of securitisation in recent years is its flexibility in the choice of an underlying asset.
The advantages of a global securitisation program are that investors access these securities from their existing brokerage accounts, imposing no additional Know Your Client (KYC) or Anti-Money Laundering (AML) requirements for new investors. Assets stay within existing custodial accounts, and any redemptions or distributions are delivered directly to the investors. Top-tier service providers, each serving a different role in the program, are key to ensuring the program’s robustness and trustworthiness.Securitisation, as with any other alternative investment vehicle, is most useful when customised to each specific situation. To choose the most advantageous investment structure, asset managers may consider the:
- degree of applicable regulatory impact;
- burden of administrative diligence;
- complexity of accessing global investors; and
- speed with which the investment structure can capture opportunities.
For investors, key advantages include:
- ability to target assets;
- flexibility to choose passive or active strategies;
- cost efficiency; and
- simple onboarding process.
Start-up managers are faced with a plethora of options when considering types of investment vehicles. Factors considered are usually regulatory framework, investment strategy, investor geography and appeal, network of service providers and, perhaps most importantly, the resources needed and set-up cost. As the livelihood of a fund largely depends on its ability to attract capital, it is important for the investment vehicle to be set up to meet investor standards. While no two investors have the same requirements, the objective is to employ commonly used structures and processes that are easily understood by them.
Commonly known funds include SICAV (Ireland), SICAR/SIF/RAIF (Luxembourg) and Cayman. Singapore recently introduced an S-VACC (Singapore Variable Capital Company) structure that is on par with those well-known structures. Its aim is to encourage asset managers to re-domicile existing investment vehicles back to Singapore. This move is seen as a first step to standardising vehicles that can subsequently benefit from the Asia Region Fund Passports (ARFP) initiative that allows for marketing in Asia, like that of a UCITS in Europe. However, ARFP has yet to be finalised and, despite the introduction of S-VACC, it is likely to benefit asset managers who are largely targeting Asian investors. The costs and resources associated with setting up these structures are likely to remain significant.
What solution does FlexFunds offer?
Regardless of domiciles and structures, the setup of investment vehicles poses similar considerations and obstacles. As such, it is prudent to consider an alternative asset management structure: securitisation. FlexFunds, through a global note program, provides a turnkey solution called ETP Notes that allows for quick time-to-market product issuance. The program appoints a portfolio manager to trade from the custodian account, which gives its value to the ETP Notes. These ETP Notes allow for wider market access by investor groups around the globe, as they can be purchased by private banks, brokerage houses and platforms. It also reduces the KYC/AML work burden performed by asset managers for new investors. Additionally, since investor assets remain within the custody of investors’ banks while being invested into the fund, the interests of private banks, investors, and fund manager are aligned. Investor groups that previously were not able to invest in private shares/units of offshore funds can now do so through a Euroclearable security.
This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.
Bo Wei Tang is a Business Development Director at FlexFunds covering the Asian markets. His focus is on helping clients structure customised investment vehicles for international distribution. These clients include hedge funds, private equity firms, real estate developers and other asset managers. Bo Wei’s experience includes managing positions at Eurekahedge, the world’s largest hedge fund research house, building and overseeing its Risk Analytics business, and United Overseas Bank. Bo Wei graduated with honours from the University of London with a degree in Accounting and Finance.
With over US$2.5 billion in total funded amount and a presence across the Americas, Asia and Europe, FlexFunds is a recognised leader in providing customised investment vehicles for asset managers, hedge funds and family offices through its robust asset securitisation program. FlexETPs are distributed through a listed Euroclearable security with an ISIN number, a price (NAV) calculation, a Bloomberg listing, and trustee and audit services. FlexETPs provide unique operational and distribution advantages for asset managers globally.
FlexFunds’ securitisation program delivers major advantages to asset managers:
- Speed and Efficiency: Issuances are launched within four to six weeks and include a turnkey solution and banking platform setup.
- Global Distribution: Listed securities with ISIN codes are widely circulated through capital markets.
- Access: Investors on worldwide trading platforms require no additional KYC or AML processes.
FlexFunds’ securitisation program offers:
- FlexETP Fund, which securitises a portfolio of publicly traded assets such as equities or debt;
- FlexETP Loan, which securitises a private loan agreement; and
- FlexETP Wrapper, which securitises private shares of a company or fund.
FlexFunds works with selected service providers, such as Bank of New York Mellon, Euroclear, PricewaterhouseCoopers, Reuters and Bloomberg. For more information, please visit www.FlexFunds.com or write to email@example.com. For inquiries in Asia Pacific, please contact Jose Manuel Lopez, Region Manager at firstname.lastname@example.org.