An asset manager may have a well-established investment strategy and a solid track record, yet run into difficulties when it decides to expand its international reach. In many cases, the obstacle lies not in the portfolio or in the investment decisions, but in the vehicle or structure used to scale the strategy.
The chosen structure can facilitate access to certain custodians and platforms or, on the contrary, limit growth opportunities. For managers looking to reach new channels, this is an issue worth resolving before starting their expansion.
When a strategy needs to go further
Consider an asset manager that manages a portfolio through a brokerage account and wants to offer international investors access to that same strategy.
Even with a track record and a defined management methodology, it may find that the custodians used by its potential investors do not allow direct access to the existing structure.
Replicating the portfolio across different accounts would be one alternative, but it would also mean managing more processes, coordinating different intermediaries, and taking on additional costs. Another option would be to structure the strategy through a vehicle that can be held and settled through the systems those investors use.
It is not only about having a winning investment strategy, but about finding a structure that facilitates access to it.
This situation is especially relevant in Latin America and US Offshore, where international investments often involve different custodians, platforms, and financial institutions, each with its own operational requirements.
The investment vehicle as a strategic decision
When selecting an investment vehicle, legal, regulatory, and tax considerations usually take up a good part of the analysis. But there are other issues that can prove decisive, especially when the manager seeks to expand its international reach.
One of them is the instrument’s identification. Having an ISIN code allows a security to be recognized in a standardized way across financial systems. Its compatibility with the custody and settlement mechanisms used by intermediaries also matters, as does the availability of information for its valuation and monitoring.
That said, having an ISIN or being able to settle an instrument through an international system does not mean it is automatically available to any investor. Its accessibility will depend on the conditions set by each intermediary and on the regulations applicable in the relevant jurisdictions.
That is why the choice of vehicle should take into account not only the assets that make up the portfolio, but also who its potential investors will be, where they operate, and through which channels they access their investments.
Securitization: An alternative for broadening the reach of strategies
Asset securitization offers an alternative for managers who need to adapt the structure of their investments to new access channels. Through this mechanism, certain portfolios are repackaged into investment vehicles backed by the underlying assets.
One of its applications is the issuance of ETPs with an ISIN identifier which, depending on the conditions of each issuance, can be integrated into international custody and settlement systems such as Euroclear or Clearstream.
Let’s return to the example of the asset manager that runs its strategy from a brokerage account. Instead of replicating the portfolio across different accounts, it could consider repackaging it into an ETP. This way, eligible investors could gain exposure to the strategy through a financial instrument, provided their intermediaries allow them to trade it.
This approach can facilitate access to an existing strategy without having to modify its investment policy, while also allowing certain administrative and operational processes to be centralized.
FlexFunds works precisely in this area, creating and coordinating investment vehicles through asset securitization. Its solutions enable managers to repackage their strategies into ETPs and integrate them with certain international custodians and platforms. The company coordinates the processes related to the issuance and administration of the vehicles, while the manager stays focused on its investment decisions.
What should a manager evaluate before internationalizing its strategy?
The choice of vehicle should not be based solely on setup costs or launch timelines. It is also necessary to consider how the structure will perform as the strategy expands its international reach.
Before making a decision, it is worth asking three questions:
Is it compatible with the custodians and intermediaries you intend to access?
It is not enough for the instrument to have an international identifier. It is necessary to verify that it can be incorporated into the custody and settlement systems used by the target intermediaries and that it meets their operational requirements.
Does it meet valuation, administration, and reporting needs?
Valuation mechanisms, the availability of periodic information, and coordination among service providers are fundamental to maintaining consistent and transparent operations.
Can it support the strategy’s growth?
A structure suited to one portfolio and a limited number of investors may become less efficient as markets, issuances, or operational needs increase. For this reason, it is worth evaluating recurring costs and the structure’s capacity to absorb that growth.
The choice of vehicle should address both the manager’s current needs and their expansion goals.
A decision worth making early
Internationalizing an investment strategy requires identifying opportunities, understanding the particularities of each market, and building relationships with the right intermediaries. But it also requires verifying that the chosen vehicle meets the operational needs of those channels.
Leaving this decision until an advanced stage of the process may force a review of structures, additional costs, or delayed access to certain markets.
An investment strategy may have the potential to grow internationally, but the structure used to implement it can determine how far it can go.
FlexFunds’ guide “Internationalization of investment strategies through asset securitization” analyzes the main barriers to international expansion and the structuring alternatives that can help managers broaden the reach of their strategies. Download the full guide
