- This article delves into the advantages of securitizing hedge funds.
- It is primarily aimed at fund managers wishing to increase liquidity and ensure distribution.
- Securitizing a hedge fund increases distribution by reaching out to a broader investor base. Through our FlexFeeder investors can invest in your fund through their existing brokerage accounts by purchasing securities listed with an ISIN/CUSIP. Contact us for more information!
One of the main challenges for asset managers is the distribution of hedge fund investments. These funds are high-risk, but also offer potentially high returns and the flexibility to maximize returns through a variety of investment strategies.
One way to overcome market obstacles and convert these hedge funds into more efficient instruments is to securitize them into marketable securities and transfer them onto the market.
Securitization opens the doors to more investors, allowing them to join with no limitations, an advantage for both managers and investors. The former facilitates global access to these funds, which significantly improves their efficiency, while the latter can join them, diversify, and benefit from their strategies.
It should be noted that this is a very actively managed investment vehicle, one in which managers are deeply involved in decision-making and deliver a great deal of value to their clients. Securitization of hedge funds avoids centralized underwriting and allows direct access to private investments for brokers, banks and registered managers authorized to purchase these funds for their clients.
Securitization of hedge funds avoids the centralized underwriting process and allows direct access to private investments.
Thanks to their advantages, hedge funds are steadily increasing in popularity. According to Research and Markets, the value of assets in these funds currently exceeds $1 trillion and will reach $1.42 trillion by 2028.
Advantages of securitizing hedge funds
Hedge funds became infamous in the wake of the 2008 global financial crisis.
With the freedom to achieve high-leverage ratios and use all their capital across diverse strategies and complex derivative instruments, many of these funds invested huge amounts of money in subprime mortgage-backed assets like CDOs or collateralized debt obligations.
In addition, by converting assets into marketable securities, liquidity is enhanced, and risk management is facilitated. This allows investors to benefit from the potential for high returns while mitigating some of the risks associated with direct hedge fund investments.
Securitization opens the doors to more investors, an advantage for both managers and investors. The former facilitate global access to these funds, significantly improving their efficiency, while the latter can join them, diversify, and benefit from their strategies.
Access to new investors and greater efficiency
The benefits of hedge funds reach investors and asset managers in equal proportions. It should be noted that structuring through securitization allows managers and investors to spend more time managing their portfolios.
Securitization simplifies the investment process, making it easier to attract new investors who may have been previously hesitant due to the complexities and risks associated with hedge funds. By converting hedge fund assets into marketable securities, the barriers to entry are reduced, opening up access to a broader range of investors.
Additionally, they can raise more capital because their market distribution capacity has increased, thus enabling them to capitalize further on the benefits that hedge fund schemes offer.
Structuring through securitization not only improves portfolio management but also enhances market distribution capacity, allowing for increased capital raising and maximized benefits from hedge fund strategies.
Facilitates global access to investments
It’s a simple solution that facilitates the absorption of low-cost capital, as well as the distribution of investments. Securitizing hedge funds takes advantage of the comparative benefits of asset securitization, including flexibility, diversification, liquidity, and solidity, alongside the key advantages of hedge funds, such as high returns and total freedom to manage capital.
This method also democratizes access to hedge funds, allowing investors from different geographical locations and varying capital bases to participate. By breaking down the traditional barriers of entry, securitization expands the reach of hedge funds, enabling them to attract a more diverse investor pool.
Hedge funds have consolidated and are looking for ways to reach more investors, despite their natural limitations. For this reason, securitization of these funds has emerged as the perfect way to keep them growing and becoming more liquid.
Securitizing hedge funds not only facilitates the absorption of low-cost capital and efficient distribution but also democratizes access, breaking down traditional barriers and attracting a diverse investor pool globally.
FlexFunds has developed products with a simple and cost-effective solution. Through our FlexFeeder investors can invest in your fund through their existing brokerage accounts by purchasing securities listed with an ISIN/CUSIP.
