How to set up and launch investment vehicles that are easy to distribute

News & Insights - September 6, 2021
Investment Vehicles

For every investor, it is important to have a working knowledge of investment vehicles as a basis for decision-making. For every financial advisor, the key is that their clients understand the portfolio and have easy access to invest in it.

An investment vehicle is simply the way a person can invest their money. For those who offer a specialized investment portfolio, the distribution challenges are significant. Securitization occurs when an illiquid asset becomes a bond issued in the capital market, providing returns to investors. This solution is an alternative to be evaluated.

Large companies have traditionally been prone to asset securitization. Nowadays, a wide variety of asset managers follow this trend for their specialized investment strategies.

In these cases, the managers offer access to investment portfolios through notes listed on the stock exchange, providing many advantages to investors compared to direct investments. These include:

  • Professionalized managed. This management is critical when direct investments are difficult to find.
  • It facilitates the access of small and medium-sized investors to the services of professional managers, whom they could not otherwise afford to hire.
  • Investments made through securitization allow investors to purchase large-sized assets, such as real estate developments. This advantage is significant for non-institutional investors who cannot afford to buy these sorts of assets independently.

Securitizing portfolios with ETPs

Since exchange-traded products (ETPs) were marketed first time in the last decade of the 20th century in the US, these instruments have been an essential part of asset managers’ portfolios as they are flexible, transparent, and open to a global investor universe.

The securitization of investment strategies has since marked a trend that has been of great help to financial advisors. It provides them with many benefits when promoting and acquiring clients.

Flexibility 

One of the main reasons for launching an investment strategy under this mechanism is the flexibility and benefits provided to managers.

ETPs have several advantages similar to stocks since they trade in a regulated market, and their cost is the same as buying or selling securities. In addition, they do not require minimum investment capital or early redemption charges.

These characteristics facilitate the distribution of notes in the world’s principal financial markets and allow them to be more flexible than traditional funds, which lose dynamism due to more significant requirements and other regulatory burdens.

Product customization

Within the large group of ETPs, there are several alternatives available to asset managers, depending on the investment strategy they plan to launch. The ETPs allow them to set up products according to their needs, considering a large pool of financial assets or investment portfolios. FlexFunds is a company that specializes in the setup and launch of investment vehicles.

The flexibility of the investment strategy’s underlying assets includes specific sectors or assets such as a large-sized new real estate project, a novel alternative energy generation plant, or many others, which investors can access simply from an existing brokerage account.

Savings and higher returns

The management of this type of investment vehicle can also translate into lower maintenance expenses, greater liquidity, transparency, and of course, transactional savings for both managers and investors when compared to other types of funds. 

The British firm IG sums up this quality by stating that an ETP combines “in a single transaction” what “would otherwise be several transactions in different types of assets,” which translates into lower cost. In addition, it can provide tax benefits, in the case of some jurisdictions, as “capital gains only arise on the sale of the entire ETP and are therefore only taxed once and in aggregate.”

Distribution

As a versatile instrument, an ETP opens a universe of opportunities for asset managers on a global scale, allowing them to connect with investors looking to diversify their portfolios with a solid model. The key is to take advantage of the “exposure” that this instrument provides to “certain underlying markets that are not available through traditional trading vehicles, such as exotic stocks or indices,” notes IG in its report.

In today’s landscape, firms in the asset management industry are facing rapid and abrupt changes. Many of their traditional products, tools, and approaches must adapt quickly to maintain the effectiveness of earlier times. That is why today, players such as FlexFunds rely on fast and efficient asset securitization programs, serving asset managers of all types worldwide. Through its products, the company is helping managers adapt to market changes through solutions that meet the need for expense control while providing the innovative investment structures that clients are now demanding.