Delio Roundtable: Discussing the trends in private markets deal structuring

The subject of private markets deal structuring has gained considerable attention and traction over the last couple of years. With the democratisation of access to private markets becoming one of the most significant themes within the industry, the use of investment vehicles is becoming an increasingly crucial component of how capital is raised across investors. 

Our Head of Structuring Services, Alessandra Ricagno, Head of Structuring Account Management, Lisa Sheehan and Structuring Solutions Manager, Diego Vuilliomenet, recently hosted a roundtable discussion about the various private markets investment vehicles available, their relative strengths and limitations, and how Delio’s uniquely configurable solutions can mitigate some of the barriers that have typically limited investor access to private markets. 

Why is private markets deal structuring becoming more prevalent in the market?

Delio is in the privileged position to hold regular conversations with a range of firms in the private markets space, and there is little doubt that we have seen a significant increase in the number of financial institutions that are proactively assessing deal structuring solutions. 

From speaking to participants during the roundtable, some of the most common reasons that firms may be looking for assistance with their deal structuring include:

• Simplifying the investment process
• Engineering new distribution channels across different jurisdictions
• Creating a cleaner cap table
• Helping to form a clearer strategy for the deployment of capital
• Democratising access to alternative assets by reducing ticket sizes and pooling investors together

Some of the Delio clients that contributed to the discussion also highlighted the importance of reducing the time taken to go-to-market. They commented that the integration of deal structuring solutions through the Delio Core platform and the subsequent digital delivery of investor services had enabled them to greatly reduce their traditional operating model, with one firm noting that their go-to-market time had been halved.

What are you seeing in the market between regulated and unregulated models?

The regulated space has traditionally been dominated by the largest wealth managers and banks. As a result, the vast majority of deals have traditionally used regulated models because it was the default option for those bigger players to use.

When we asked clients if they had considered an unregulated structure, such as a Lux SPV through Securitization, as a wrapper, it was interesting to note that the answer was typically ‘no’. When we explored the reasons behind this approach, it was largely due to the fact that firms considered those products to be more suited for either the real estate market or as a feeder for funds. 

These comments exposed the fact that the industry’s technical knowledge and understanding of some investment vehicles still have plenty of room to mature. Ale Ricagno highlighted that she believes it’s vital for financial institutions to take the time to talk about the different structures available and compare and contrast them against their needs as a business and those of their clients. In doing so, they should be able to develop a deeper understanding of the best possible solution available.

One participant added to this, commenting: “We spend a lot of time with wealth managers, and find that they often ask, “What is the one vehicle that I can use which is suitable for the broadest possible marketplace?” and concluded that the simple answer is that there’s no ‘one size fits all’ solution and that industry players need to develop their understanding around the intricacies of deal structuring. In response, another participant commented; “Ale and the Delio team, what you put out in terms of educational content is starting to bridge this gap and helps us to say to investors, ‘this is why private markets are compelling, but you need to understand the risks and challenges that come with accessing it’”. 

How do you address the barriers that prevent firms from using investment vehicles?

The group agreed that cost implications of setting up investment vehicles had traditionally been a significant barrier to entry for many players. Delio’s team went on to explain that the set up costs of a structure had traditionally ranged from £70K up to £120K, depending on the specific complexities of the vehicle and which law firm you chose to work with. 

Ale explained that when she was setting up Delio’s structuring solution, one of the first things she considered was how to address and overcome the traditional barriers associated with deal structuring. 

Historically, unless you’re a large wealth manager that’s able to create a program for investment opportunities or various feeders with a team of lawyers, you would need to create a unique vehicle for each investment opportunity. This approach obviously drains resources, is expensive, and takes a significant amount of time to set up. To combat this, Ale explained that she and her team have created a repeatable program of work that simplifies the legal and operational work involved. 

This approach enables work to be done upfront and drives greater efficiency, meaning less resource needs to be deployed, the cost of work is lower, and these savings can then be passed down to the client. 

In practical terms, Delio’s unique approach means that we can create far more efficient ways for our clients to access various solutions. For example, we have created deal structuring programs where 70% of the terms are fixed, with the client still being able to customise their term sheet and subscription documents. This means that they can set their fee structure, capital call mechanisms, who it’s distributed to and how the go-to-market strategy will work, while cutting down the operational costs by around a third, compared to the more traditional law firms.

“There’s also barriers to entry for emerging managers, because to have a plurality of different vehicles and structures under a single operating platform increases costs and pressure,” one member of the roundtable added. 

They continued, “The idea of having hybrid and more liquid vehicles and solutions is improving; for example, the secondary market is starting to offer better and more appropriate solutions for this type of investor, but the reality is that there’s still plenty of hurdles to overcome for managers to offer the right solution, and for retail investors to get true democratised access. Ale and the Delio team are at the forefront of changing that.”

Learn more about the structuring services we offer at Delio here, or by requesting a free consultation.