Published in: DEAL-Magazin

Luxemburg, 27 February 2023 – In the months to come, markets will have to keep an eye on central banks, inflation, and on the global economy. A recession is not yet certain to be avoided. “Strong market fluctuations are inevitable,” says Daniel Knoblach, Board Member at Fair Alpha. “As a result, many institutional investors are now looking for opportunities to diversify.” Alternatively, they create these opportunities on their own.

Traditional balanced funds, which have grown in popularity among retail investors in recent years, can be difficult for institutional investors to invest in. “Often, there is no way to prudently classify the funds because of the wide ranges in asset allocation”, Knoblach points out. “Internal control mechanisms, however, or even regulatory investment guidelines frequently require such regulatory classification.” A highly flexible commingled fund, for example, may invest up to 100 per cent in equities, but at other times hold 100 per cent in bonds and cash. “Many believe that mandatory reporting can only be done at high cost, which is why they refrain from investing”, Knoblach says.

Many institutional investors are turning to securitisations designed specifically for them to diversify their portfolios during the expected coming market downturn. Institutional structures such as Luxembourg compartments are able to quickly bring strategies to market. “Large institutional investors, but also asset managers or family offices use these vehicles to put their own ideas into action and combine them for diversification”, Knoblach adds. For example, in one securitisation, a property may be acquired while in another one, an equity, regional, or sector strategy may be implemented, and in a third one, a bond exposure is created”, Knoblach explains. “By combining these three certificates for the client or institutional investor, strong diversification is created.” In cases where a clear sustainability strategy is to be implemented, securitisations are also an option. “We see examples such as the securitisation of a wind or solar farm, combined with an equity strategy with appropriately sustainably rated shares and possibly another certificate with green bonds”, Knoblach says. “Diversification in this context refers to asset classes within a topic, not the topics themselves.”