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CAPITALIZE ON STRUCTURE

FinaTech advises, boosts return, and minimizes risk.

UNLOCK YOUR NEXT FUND'S FULL POTENTIAL 

The solution below rapidly deploys your LPs' capital, while minimizing the cost of acquisition of new assets without the need for subscription lines. It generates securities that appeal to a broader universe of investors, opening access to trillions in untapped capital. We have more solutions like this. Let us advise you on your next fund to access untapped capital and boost your LPs' returns.

Sensitivity Analysis for the Below Structure

The example shown below is based on portfolios earning 9%. This table shows how the subordinate LPs would fare under a range of scenarios.

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Step 1 - Establishing the Fund's Structure

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An optimization analysis determines the fund should be comprised of three classes of LP units: 40% Senior LPs, 35% Mezzanine LPs, and 25% Subordinate LPs, with the Senior LPs receiving an 8% annualized preferential return and the Mezzanine LPs receiving a 12% preferential return. The Subordinate LPs thus receive the remainder of the fund's earnings. The fund is designed to have dual real estate and equity portfolios leveraged by rated bonds.

Step 2 - Investors Fund the Real Estate Portfolio

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The fund calls on its LPs’ capital commitments to acquire assets for its Real Estate Portfolio.

Step 3 - The Bonds Are Sold as Equities Are Acquired

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Bonds are sold concurrently with the acquisition of assets for the fund’s Equity Portfolio. Both the real estate portfolio and the equity portfolio collateralize the bonds. Thus, a purchase of $100M in assets for the fund’s equity portfolio would contribute to an asset base of $1.1B, which would be servicing $100M in bonds. Once the fund had acquired a billion dollars in equity assets, it would be servicing a billion dollars in bonds that were collateralized by two billion dollars in assets, for a total LTV of 50%.

Step 4 - Additional Bonds Are Sold to Expand Both Portfolios

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The fund expands the size of its equity and real estate portfolios by selling additional bonds. In the illustration above, the Equity Portfolio and Real Estate Portfolio have each been expanded from $1B to $2B through the sale of an additional $2B in bonds. This increases the LTV ratio of the fund’s bonds from 50% to 75%.

Step 5 - The Portfolios Are Liquidated, Bonds Repaid, and Proceeds Allocated According to Preferences

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Both portfolios are liquidated. In this example, they both produce a 9% return. The proceeds pay off the bonds at an annualized interest rate of 5%, the senior LPs at a preferential return of 8%, and the mezzanine LPs at a preferential return of 12%. The remaining proceeds thus go to the subordinate LPs for a 54% return. The table below summarizes the math.

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