Securitization: How to convert assets into bankable assets through an ETP?

News & Insights - February 25, 2022

With more and more ground conquered in the financial world, modern securitization strategies aim today to serve as a bridge to reach multiple private banking platforms regardless of the type of asset, facilitating the process of converting the underlying assets into bankable assets.

Bankable assets are a type of asset characterized by being distributable across different platforms in private banking. And today, securitization allows a group of illiquid assets such as real estate to be converted into securities and leverages exchange-traded products (ETPs) to convert the underlying assets into bankable assets.

It is precisely because of this characteristic that firms like FlexFunds, a global specialist in structuring investment vehicles, can facilitate access to multiple private banking platforms. This company “creates independent, fund-like investment vehicles for strategy management and global distribution to non-U.S. investors. The asset securitization program of FlexFunds creates exchange-traded products (ETPs) or what we call a Flex,” it explains on its website.

One of the most significant advantages is that the investment strategy is not limited to a specific asset; it can securitize liquid and illiquid assets. The private bank’s treatment of these transactions as debt enables a FlexFunds’ ETP set up quickly. The agility of this process contrasts with the tedious and time-consuming schemes of traditional funds, which are subject to complex verification procedures given private banking KYC policies.

A Boston Consulting Group (BCG) report published in July highlighted that the asset management industry mobilized US$103 trillion in 2020, with North America being the most dynamic region with assets under management of US$49 trillion, an increase of 12%. According to the report, retail portfolios contributed 41% of global assets (US$42 trillion), and institutional investments grew by 59% (US$61 trillion).

In this regard, he says that the industry is entering a new era that will require businesses to reconsider aspects ranging from client participation to the investment products themselves. They need to keep in mind that processes more than ever need to be driven by data and analytics, while ESG criteria are now becoming more relevant. “And on the income side, new asset classes, particularly within private markets and alternatives in general, will be crucial for growth over the next few years,” he says.

By 2025, the asset management industry could reach US$145.4 trillion in AUM, mainly driven by higher net worth individuals and a trend toward retirement savings, says PwC in a report titled Asset & Wealth Management Revolution: Embracing Exponential Change.

A $78 trillion opportunity in non-bankable assets

The value of global personal wealth is estimated to be around US$260 trillion today, and 45% of this is in bankable assets, which are common in wealth management portfolios. However, opportunities are also growing in the management of non-bankable assets, whose “characteristic feature is a certain lack of liquidity,” according to the Swiss company Avaloq.

This characteristic, it explains, prevents the inclusion of non-bankable assets “in an asset portfolio, as well as, often, their acceptance as collateral to secure a loan.” However, it is now possible to include these assets in portfolios through tokenization, generating liquidity for their owners.

The value of bankable assets stood at US$118 trillion in 2020, contributing the most significant share to global wealth, ahead of non-bankable assets – such as real estate, proprietary businesses, art, or so-called passion assets – which contribute US$78 trillion (30%).

Figures from Statista further indicate that of all the highest net worth investors in the U.S. in 2019, half had their bankable assets in the form of equities and of that group 6% in alternative investments.

 Trends to 2025

In Accenture’s report on the megatrends that will prevail by 2025, the asset managers consulted said the predominant focus will be developing customized solutions.

 Among other trends, they foresee a scenario highly dominated by Artificial intelligence (AI) and autonomous learning to generate advantages over competitors while offering greater value to clients.

The report explains that “these trends could open the door for wealth managers to expand their business models to capture untapped potential,” primarily as it relates to non-investable assets, which “represent a significant and growing portion of an individual’s total wealth today.”