Published in: BondGuide

Luxembourg, 10 July 2023 – Venture capital and private equity investments are rightly regarded as one of the most interesting investment opportunities. For institutional investors in particular, however, direct investment is often difficult or impossible for regulatory reasons. “Opting for a Luxembourg securitisation route enables investors to conveniently register their investment opportunities as securities within a custody account”, says Daniel Knoblach, Board Member at Fair Alpha.

“Direct investments may be partially excluded by the supervisory authority or may be subject to stringent capital requirements”, Knoblach points out. Under the provisions of Luxembourg securitisation law, investments in venture capital (VC) and private equity (PE) can also be conveniently presented within an Actively Managed Certificate (AMC). “The AMC is issued in compliance with Luxembourg securitisation law, has an ISIN and is considered a bankable security”, Knoblach says.

Over the past few years, there has been a substantial rise in investments within this particular asset class. “Securitisations have significantly contributed to this situation”, Knoblach adds. “This is a key area of focus within the securitisation industry.” Venture capital investments have historically played and continue to play a pivotal role in fostering corporate growth and driving innovation. Nevertheless, it is crucial to note that engaging in venture capital investments necessitates a significant level of financial liquidity from potential investors. “The current shortage in this particular market can be attributed to the significant increase in interest rates. However, it is worth noting that this shortage is now starting to diminish as a result of the successful implementation of securitisations”, says Knoblach.

“Gaining access to pure VC or PE investments has historically been quite restricted, primarily due to stringent regulatory requirements”, Knoblach continues. Securitisation, on the other hand, provides convenient access by allowing the purchase of a single security into the portfolio. Additionally, this feature allows for expedited market access, significantly reducing the time it takes for an idea to reach full market maturity. “The time frame for classic tangible asset funds or limited partnership solutions for closed-end investments is significantly reduced, often by half or even less. It is of utmost importance to consider the time sensitivity when initiating a project.”

Securitisations offer exceptional flexibility in terms of maturities and various structures, allowing issuers to tailor them extensively to meet the unique requirements of their clients. “Securitisation is bringing about a significant transformation in the manner in which venture capital investments can be executed,” says Knoblach. “By leveraging its quick time-to-market, adaptable design, and the bankability of VC and PE, Luxembourg securitisations present investors with a range of exciting new possibilities. Additionally, these securitisations offer the potential to invest in token-based VC projects, further expanding the investment landscape.”