• This article explains what untapped assets are, how they are classified, and what asset managers can do to make the most of them.
• The information is aimed at asset managers interested in strategies to improve the liquidity of untapped assets.
• FlexFunds offers an asset securitization program that generates liquidity for untapped assets. For more information, feel free to contact our experts via the contact form.

In today’s financial industry, fund managers use a wide range of asset types to build comprehensive strategies. Among them are untapped assets that must be managed carefully to ensure their full benefits are realized.

What do we mean by untapped assets?

In an institutional context, untapped assets are valuable assets whose cash flows and returns are not fully leveraged. In other words, they are illiquid or complex assets that remain “locked” due to structural barriers.

A conceptual example is asset-backed securities: the underlying assets are often small and illiquid and cannot be sold individually; by pooling them into tradable instruments through securitization, they become accessible to the market.

Common types in institutional portfolios

Untapped assets span several categories commonly found in institutional portfolios:

• Financial assets: loans and various forms of credit (mortgages, corporate loans, auto loans, credit card balances, etc.) that can be pooled into asset-backed securities.
• Accounts receivable and trade debt: outstanding invoices that generate future cash flows, traditionally kept outside primary markets.
• Intangible assets: royalties, patents, licenses, or copyrights (such as music or patent revenues) whose future cash flows can be securitized.
• Real estate and rental income: commercial properties or their rental streams (for example, through CMBS). Securitizing these cash flows allows asset managers to structure them into investable formats without requiring direct ownership of the underlying properties.

Reasons why they remain untapped

These untapped assets mainly face liquidity constraints and market barriers.

When there is no active market in which to trade them, any attempt to sell can dramatically move the price. Large-volume transactions involving illiquid assets tend to generate very wide bid–ask spreads, making the transaction more expensive.

In addition, the lack of reference pricing makes valuation more difficult: without frequent quotes, the asset may be undervalued due to limited visibility.

As a result, a significant portion of capital remains “locked” in these assets, with no efficient way to reallocate it without sacrificing returns.

Legal and operational complexity also represents an additional barrier. Many of these assets are subject to specific regulations or contractual arrangements that restrict their transfer. A common example is private equity funds, which typically impose minimum holding periods.

Key challenges in monetizing untapped assets

The issue with untapped assets is that they face several challenges when it comes to being monetized:

Liquidity constraints and limited market access

The central challenge is converting the asset into cash without distorting the market. Secondary markets for these assets are narrow, meaning that a large block can drive prices down.

Low trading frequency significantly limits liquidity, as illiquid markets tend to have wide bid–ask spreads and are particularly sensitive to volatility caused by large-volume orders.

Operational and regulatory barriers

Even structuring a securitization involves complex challenges. First, local legal requirements must be met, as each jurisdiction has specific rules governing structured vehicles and debt issuance.

There are also significant operational barriers. Designing a fund or SPV that issues tradable securities requires a multidisciplinary team spanning finance, legal, accounting, and technology.

Ongoing management then demands detailed tracking of cash-flow waterfalls by risk tranche, along with regular reporting and strict audits.

How does securitization turn untapped assets into bankable instruments?

To convert untapped assets into bankable instruments, asset securitization is used, a process carried out by companies such as FlexFunds.

Structuring into listed and distributable vehicles

Securitization pools  untapped assets into a special-purpose vehicle (SPV) that issues listed securities. Under this structure, the future cash flows of the underlying assets back the payment of the securities.

The SPV “pools” the assets according to the desired risk profile and sells investors debt or equity instruments backed by them. In private funds, these vehicles are typically structured in tranches (senior, mezzanine, junior), each with a different risk–return profile.

In this way, products comparable to bonds or tradable structured notes are created. For example, FlexFunds enables the creation of ETPs or structured notes with their own ISIN, listed on an exchange, and “linked to and backed by” the underlying portfolio.

Benefits: traceability, scalability, and global access

Securitization offers several key advantages:

Improves transparency (traceability)

By structuring everything on standardized platforms, issuers, investors, and regulators gain clear visibility into the underlying cash flows and collateral.

Scales the market

By breaking the asset into smaller, tradable securities, participation by different types of institutional investors is made easier. Since ETPs can be listed on exchanges, these instruments can be integrated into financial intermediation platforms, facilitating the international distribution of investment strategies by asset managers through regulated structures.

Global access to financing

By converting local or private assets into standardized securities, asset managers can structure them into globally distributable investment vehicles, enhancing portfolio scalability and supporting cross-border allocation through regulated channels.

What should asset managers consider before structuring?

All asset managers should take several factors into account before structuring exchange-listed products:

Identifying assets suitable for securitization

Not every asset is a suitable candidate. Asset managers should select assets with predictable cash flows and low correlation to public markets, as these are the ones that add the most value.

Alignment with investment objectives and risk profile

The issued securities must fit within the portfolio strategy. Securitization enables the offering of different risk/return classes. As with any investment, thorough due diligence and scenario modeling are essential to ensure that the new issuance aligns with institutional objectives and does not introduce unwanted biases into the portfolio.

To learn more about FlexFunds products, feel free to contact our experts via the contact form. The team is available to assist you with any needs.

Sources:

• https://www.bekafinance.com/learning/tipos-de-activos-que-se-pueden-titulizar
• https://en.wikipedia.org/wiki/Asset-backed_security
• https://thetradinganalyst.com/illiquid-assets/
• https://www.flexfunds.com/solutions/private-equity-securitizacion/