Introduction
While traditionally associated with mainstream banking, securitisation has emerged as a powerful structuring tool for alternative investments. This blog post examines how asset managers can use securitisation to improve their fund structures and expand their distribution capabilities.
Understanding Securitisation in Alternative Investments
Securitisation turns investment strategies into transactable securities. It’s a simple concept with powerful implications for alternative investments. The process typically creates instruments such as Performance Tracking Certificates (PTCs) that reflect the returns of underlying portfolios or strategies. Managers find this approach particularly attractive compared to traditional fund structures, as it directly addresses key operational and distribution challenge
These structures offer tangible advantages for managers seeking institutional capital or broader market access. By leveraging the established market infrastructure, securitised products reduce operational friction while maintaining strategy integrity. This balance of accessibility and control explains the growing adoption among alternative managers seeking scalable distribution solutions.
Key Features and Benefits
The real power of securitisation lies in its adaptability. When we work with hedge funds, private equity or real asset managers, they’re often surprised by the flexibility that securitisation offers. Managers can create bespoke solutions, including:
- Performance-tracking certificates that mirror strategy returns
- Ability to capture performance of private assets
- Can accommodate up to daily valuations and daily liquidity
- Valuations sent directly to custody accounts for easy monitoring
Distribution Advantages
One of the most compelling aspects of securitisation is how it simplifies global distribution. Traditional fund distribution often involves a maze of subscription documents, transfer agents, and administrative hurdles. Securitisation cuts through this complexity by creating securities that can be traded through standard banking and brokerage accounts. This means investors can access alternative strategies as easily as they buy stocks or bonds.
Types of Securitised Products
Asset-Backed Securities
These securities are directly linked to underlying assets. They appeal to investors who want a clear connection to tangible assets and predictable cash flows.
Strategy-Linked Securities
This approach involves securities that track investment strategies without direct asset backing – particularly useful for hedge funds and similar strategies. They offer investors exposure to sophisticated investment approaches in a simple, transactable format.
Tracker Securities
Tracker securities are financial instruments designed to replicate the performance of a specific underlying asset. Unlike strategy-linked securities, which follow the performance of a diversified portfolio or a managed investment strategy, tracker securities focus on a single asset, such as a private company, fund, or even a real estate property.
Practical Implementation
The practical impact of securitisation on alternative investment firms can be transformative. We’ve seen managers dramatically expand their investor base by making their strategies available through major banking networks. Others have used securitisation to create customised versions of their strategies for specific institutional clients, something that would be cumbersome with traditional fund structures.
Key Considerations
Success in securitisation depends to a large extent on whether you have:
- Understanding and selecting the right structure for the security (e.g. bankcruptcy-remote structure, pass-through structure, etc)
- A clear understanding of your target investors
- A well-defined distribution strategy
- Experienced service providers
- An understanding of operational requirements
Looking Ahead
As alternative investments continue to evolve, securitisation offers a sophisticated solution for managers looking to:
- Scale their business efficiently
- Access new investor segments
- Optimise operational processes
- Increase product flexibility
For alternative investment managers evaluating their structuring options, securitisation presents a compelling framework that combines flexibility, efficiency, and scalability.
Market Outlook & Next Steps
The securitisation landscape has changed fundamentally over the past decade. While traditional fund structures remain valuable, market participants are increasingly recognising the unique benefits of securitisation for accessing institutional capital and streamlining operations. Forward-thinking managers have demonstrated that well-structured securitisation programmes can transform distribution capabilities and operational efficiencies.
Our experience shows that managers initially exploring securitisation often focus narrowly on specific use cases. However, as they work through implementation, broader strategic benefits emerge – from simplified investor onboarding to enhanced product development capabilities. This practical experience has proved particularly valuable for managers seeking institutional capital.
Taking Action
Success in securitisation requires clear strategic direction. Before diving into structure and documentation, managers should carefully evaluate their objectives:
- What investment opportunity are you looking to offer?
- Which investor segments are you targeting?
- What aspects of your current operations need improvement?
- How could securitisation complement your existing product range?
Conclusion
Securitisation has evolved from its traditional roots in asset-backed securities to become a modern enabler of alternative investments. With innovations such as performance-linked securities and structured notes, securitisation can provide access to private equity, real estate, private credit and bespoke portfolios.
If your firm is looking to unlock the full potential of its alternative investments through securitisation, FundFront offers tailored solutions to meet your needs. Contact us today to find out more.
Frequently Asked Questions
Which investment strategies work with securitisation?
Most alternative investment strategies can be effectively securitised. We’ve structured solutions for hedge funds with systematic strategies, private equity managers, real estate portfolios and private credit funds. Each structure is tailored to match the underlying strategy’s characteristics.
Will securitisation suit my investors?
This depends on your investor base. Institutional investors often prefer securitised formats for operational efficiency. Private banks like the ability to offer structured products to their clients. Family offices value the flexibility to tailor risk/return profiles. We can help you to determine if securitisation aligns with your investors’ needs.
How does securitisation affect trading?
Traditional fund investments can be operationally intensive to buy and sell. Securitised products are transacted through standard brokerage accounts and settled like other securities. This makes a significant difference in practice, particularly for institutional investors managing multiple positions.
What exactly is a Performance-Tracking Certificate?
PTCs are simple in concept, but powerful in practice. They’re securities that reflect the returns of your strategy and allow investors to participate through their existing accounts. Think of them as a more flexible alternative to fund shares. We’ve helped many managers use PTCs to grow their investor base, particularly those running liquid alternative strategies such as systematic trading, fundamental hedge funds or managed futures, who want to give investors streamlined access to their strategies without the operational burden of a traditional fund structure.
How do you support the securitisation process?
We can take care of all the heavy lifting. Our team manages relationships with issuers, paying agents and other service providers. We’ll guide you through structure selection, documentation and implementation. After launch, we make sure everything runs smoothly so you can focus on managing your strategy.
Need more detail on any of these points? We’re happy to discuss specific examples from our experience. Contact us here.
Disclaimer
FundFront provides operational and technological solutions for fund structuring, securitisation and management. We do not provide legal, tax or financial advice. We recommend that you consult with professional legal or financial advisors to ensure compliance and appropriateness for your specific situation.
