An in-depth look at the vital role of deal structuring in private markets
At the beginning of March, we shared a brief overview of our first webinar of 2021 which explored how financial institutions could create new opportunities with integrated deal structuring. In this blog, we’re taking a closer look at the event and sharing our five key takeaways about why deal structuring is such an important component of a private markets strategy.
1. Deal structuring offers significant commercial opportunities
An appropriate structuring framework is crucial to democratising the private markets, efficiently executing investments, controlling related risks and delivering a positive experience to end investors. However, creating appropriate deal structures to meet commercial and regulatory needs requires specialist knowledge and expertise, which means many institutions are unable to fully capitalise on the opportunity in private markets.
One way in which institutions are overcoming this challenge is to utilise the expertise of deal structuring specialists. Delio began offering a comprehensive deal structuring solution at the start of 2020 and despite being a relatively new service, it’s clear that this was one that financial institutions were keen to take advantage of. Within the first six months of launching our structuring solutions service, over 10% of our clients have already integrated a process for aggregating investors, clearly demonstrating that demand for deal structuring is very much present.
2. Make sure you’ve done the appropriate research
James Fisher, who works in the Direct Investments Group at Julius Baer, discussed structuring funds for private markets. He explained that one of the first conversations investors should be asking themselves before deciding whether a product is one that they’re interested in, is “How can I distribute this? What is the structure? And is it something that is usable by my organisation, by the majority of my client base?”
One of the key benefits of having this conversation early on with the provider is that it will potentially open up parts of the market that may otherwise have been closed to the investor.
3. Structuring deals through a Luxembourg securitisation company
Frank Sarfati, Lawyer at Sarfati & Associates discussed structuring deals with Delio through a Luxembourg securitisation company. Frank broke down the process of how this type of structure works but highlighted that ‘compartmentalising’ is one of the most important elements of these investments.
A compartment is created for each individual transaction/investment and each of these compartments is legally segregated, with assets held separately in each. Each of these compartments will not affect any other compartments in the structure and vice versa. It’s a very simple and flexible process and the law of securitisation in Luxembourg has been specifically designed to provide that flexibility; hence the popularity of this type of structure.
4. Deal structuring in practice
We also heard from Douglas Hansen-Luke, Executive Chairman at Future Planet Capital, who contributed to the discussion by providing a real-world example of how his company has worked with Delio to develop a vehicle through the Luxembourg securitisation setup. The creation of this vehicle came as a direct response to the pandemic and has been incredibly successful for both Future Planet Capital and Barclays.
They started by producing a portfolio of venture-stage companies for Barclays, comprised of university spin-outs combatting the risks of infectious diseases. They launched this basket in March 2020 when the implications of the Covid-19 pandemic were becoming more and more apparent across the globe. Future Planet Capital’s unique network of universities (including Oxford, Cambridge, MIT, etc) allowed them to quickly identify a variety of companies who became central to the global drive of developing a vaccine. Future Planet Capital then used a Luxembourg vehicle to enable Barclays private bank to easily distribute it to their top-tier clients.
5. The effects of Covid-19 on deal structuring
The pandemic has affected businesses in a myriad of ways and deal structuring has not been immune to this. Douglas Hansen-Luke said that while Future Planet Capital has been investing throughout the last year, both speed of execution and the use of technology have been crucial elements to ensuring that deals were not blocked as a result of the challenges created by the pandemic. This is where services such as Delio’s deal structuring solutions, which are delivered with streamlined, end-to-end digital tools, have become even more important.
He explained how it’s been vital for Future Planet Capital to be able to operate at pace and across borders during a period of rapid change. Given the extremely high levels of investment interest in companies operating in the pharmaceutical sector, it was crucial that they had the ability to implement the most appropriate structures without delay. In addition, for clients introduced to them directly by their partners, it was also important that Future Planet Capital were able to complete KYC and AML processes efficiently, in a world where physical meetings were no longer possible. This was another example of how Delio’s digital process automation played a vital role in speeding up processes that would have previously had the potential to delay any transaction.
This blog provides just a snapshot of the wealth of information shared by the panel during our webinar. If you missed the live event or would like to catch up on-demand, you can do so by clicking the link below. If you have any questions around Delio structuring solutions, please don’t hesitate to get in touch with us directly and we’d be more than happy to help.