- Asset securitization improves liquidity and access to financing sources and may reduce credit risk, among other benefits.
- Understanding the advantages of the asset securitization process will enable you to offer greater alternatives to your clients, whether you are an advisor or portfolio manager.
- The asset securitization process by FlexFunds makes it simpler and easier for our clients in just five steps.
Asset securitization offers multiple benefits
Within the financial sector, various strategies provide multiple advantages for those who implement them and their clients, with one of the most innovative being asset securitization, as developed by FlexFunds.
What is asset securitization?
Asset securitization is a financial mechanism that involves converting liquid and illiquid assets into listed securities in the market (products listed on the stock exchange, or ETPs – Exchange Traded Products).
Advantages in the asset securitization process
As mentioned at the beginning, the process of asset securitization offers multiple benefits, among which the following stand out:
- Improved liquidity and access to alternative financing sources
Securitization allows financial institutions to obtain liquidity by transforming illiquid assets into listed securities, providing them with the ability to access additional financing sources and diversify their options beyond traditional ones.
Financial institutions can raise funds from investors by issuing securitized securities, providing them with the necessary resources to finance their activities and projects.
- Customization of securitized assets
Securitization offers the possibility of customizing assets according to the needs and preferences of investors, meaning that institutions can structure securitized securities to align with the risk profile, term, and desired performance of the investors.
As a result, investors can participate in portfolios tailored to their objectives and risk tolerance.
- Diversification of investments
Furthermore, asset securitization allows investors to diversify their portfolios by investing in a wide range of underlying assets.
The securitized securities can be backed by different types of assets, such as mortgages, stocks, bonds, properties, accounts receivable, and many more.
By investing in different types of assets, investors can reduce their exposure to specific risks and increase their potential risk-adjusted return.
How securities are issued in the securitization process
Step 1: Personalized study and ETP design
Each ETP case is unique, as it can be based on a wide variety of assets, both listed on secondary markets and private markets. Therefore, conducting a thorough study and providing a personalized solution for each client is essential.
Step 2: Due diligence and engagement letter signing
Once the product structure has been defined, the FlexFunds risk committee thoroughly evaluates the case. After this evaluation, the engagement agreement is signed, establishing the terms and conditions of the service and the functions that FlexFunds will perform.
Step 3: ETP structuring and document review
During this process, it is crucial to work closely with the client to ensure the proper development of the necessary documentation to shape the ETP. The portfolio manager onboarding process is also conducted.
Structuring is considered complete once the essential investment vehicle documents, such as the series memorandum, constituting instrument, and portfolio management agreement, have been drafted and reviewed.
Step 4: ETP issuance and listing
At this point, the investment strategy is repackaged into an ETP and proceeds to be listed, with the ISIN/CUSIP code generated to facilitate distribution.
The issuer of the notes will be a Special Purpose Vehicle (SPV) established in Ireland for the specific purpose of issuing the ETP. The issuance is backed by the investment strategy, which acts as collateral.
Step 5: The ETP is ready for trading through Euroclear
Once the process is complete, the ETP is issued and listed, meaning it is ready to be distributed.
The strategy is made available to investors in a straightforward manner. As mentioned earlier, they only need to acquire the securities through Euroclear using their brokerage accounts. This option is available through various custodians and private banking platforms.If you would like to obtain more information about the benefits of asset securitization do not hesitate to contact our team.