Smaller funds are at a certain point unable to perform. Reasons could be rejections/termination from the regulator or custodians when the fund’s value drops below a minimum threshold. In particular, the funds administrative costs are decreasing the NAV and ROI. The gloomiest consequence could be the liquidation of the fund. But, by modifying the fund structure into a securitisation transaction could avoid this and keep parties, which were involved in the management of the fund in the game.
The fund will establish a dedicated cell within our securitisation platform, whereby the cell will issue notes to the fund, who will hence become the originator, as well as the single investor, and will “acquire” through this setoff transaction the assets of the fund.
The fund will put itself into liquidation, and its fund shareholders will receive upon liquidation the notes in the cell.
Although this sounds like a straight forward process, there are many factors to be considered.
- The fund has to adhere to specific redemption dates as well as
- Tradability of the notes. Depending on the assets to be securitised, not all notes are consequently tradeable on Euroclear or Clearstream. This is not only a point of consideration by the fund as first subscriber, but also in respect to future investors.
- NAV of the fund upon setoff: A pre-defined date for the setoff has to be concluded, so that the fund managers can perform a last NAV mirroring the value of the notes.
- Transfer of ownership of the assets held by the fund: This comes along with administrative efforts for both sides, whereby the fund has to instruct and conclude the transfer of the ownership of the assets to the cell.
- Depending on the assets, there are other factors to be considered, e.g. agreements with third parties, insurances etc.
- The fund and its shareholders have to be aware of the fact that a securitisation is not a fund. The NAV of the notes is only performed upon redemption dates. As long as there is no redemption event/date, the notes are booked at their nominal value.
- Also, the fund must have in its IOM the possibility to invest in notes – this might require the approval from the current regulator.
- In the case the assets are in kind, the paying agent has to be aware of, since a common transaction within a securitisation would be notes against cash.
The transition from fund to securitisation requires the collaboration between the originator and the cell administrator, as well as other related parties, to ensure a smooth process.
Then, of course, it must be ensured that the minimum investment / issue of EUR 1’000’000 (or equivalent in other currencies) is respected.
Why is a securitisation transaction the best solution to re-structure a fund?
The securitisation transaction allows smaller issues, as mentioned above as from EUR 1’000’000 (+1) upwards. Further, securitisation transactions are not regulated undertakings in Malta, limiting the structuring to a minimum. Also, the administrational and managerial costs of a securitisation compared to a fund are negligible, and are not liable to VAT. Last but not least, the securitisation comes with beneficial tax advantages (for more information please refer to https://coprolin.com/why-malta/).