Innovation in Private Equity Using Structured Financial Products
By Vivaris Capital LLC
May 8, 2020
Private Equity / Venture
May 8, 2020
High Growth, High Return Alternative Assets While Collateralizing the Principal
Vivaris Capital, LLC has created a structured financial product (a “VICAN”) that gives investors access to institutional quality, alternative asset investments while securing their principal.
The VICAN includes two strips of investment:
- The first is invested in the common or preferred equity of middle-market acquisitions, growth capital for early-stage technology and life science companies, and real estate development projects.
- The second is invested in zero-coupon bonds, banks, and insurance products that allow for the return of the principal amount invested at the end of a 7 to 10-year term.
VICAN investments are underwritten to provide at least a 15% annualized return to investors with additional upside and downside protection.
What are Structured Notes
Structured notes are a hybrid security containing a bond component and an equity component. On a global scale, there are $2 trillion in structured note assets under management. They are much more popular in Asia and Europe, accounting for $1.1 trillion and $560 billion of that total, respectively. They are sophisticated, well-established products that are typically issued in multiples of a hundred million to over a billion dollars. During 2019, 81% were issued by some of the most prestigious, financial institutions in the world, and 18% were issued by governments.
Market linked notes are the most common type of structured note, but the product may be designed to address almost any combination of assets. Four parameters determine the structure.
- The notes have an established maturity that can range from six months to 20 years.
- They are tied to the performance of an underlying asset, such as the performance of a stock index or commodity.
- The instrument participates in some level of profit from that underlying asset.
- There is an established level of protection if the underlying asset loses value.
A VICAN is the first, institutional application of a structured note for alternative asset investments on a scale suitable for individual investors and institutions. As with all investments, there is a trade-off between risk and return. Risk is typically measured as the volatility of the price of the underlying asset as well as the risk of loss. A VICAN is structured to place a floor under the maximum expected drawdown of the underlying asset’s value.
