Making innovative use of fund structures

Fund structures are often the better choice and only feasible way of deriving maximum benefit from investment opportunities. Prime Capital has developed innovative products for institutional investors in this area that break new ground in the German market. Although securitisation structures are flexible and proven, an access solution involving a fund structure is often preferable or even necessary for technical reasons. This may be because the investment opportunity requires active management, which is incompatible with Luxembourg’s securitisation regulations, or it involves asset types that are a more natural fit with a fund-based structure. Fund structures may also be the best framework for a certain type of regulated investor, especially if the underlying assets cannot be rated properly.

The introduction of new European fund regulations via the Alternative Investment Fund Manager Directive (AIFMD) and mandatory application of its provisions often makes a fund solution unavoidable.

Anchored in law and available throughout the EU

To meet this need, Prime Capital has developed various fund platforms as part of its range of access solutions. These include both regulated corporate and partnership fund structures in Luxembourg and unregulated, segregated portfolio companies in the Cayman Islands. In all these cases, Prime Capital acts as the investment manager and/or risk manager of the fund as per AIFMD terminology. It has been authorised as such by the German regulator, BaFin, and is licensed to perform this role throughout the EU.

Ground-breaking opportunities and attributes

One of the innovative fund structure options pioneered by Prime Capital in the German market is based on the following principles:

  • Looking at the entire capital structure to see what elements can be offered (traditionally only shares have been issued)
  • Splitting the economic risk into a number of different individual capital instruments, which can be either bonds or equities, senior or subordinate, rated or unrated investments.

When these measures are structured and implemented appropriately and properly, they offer better capital treatment for institutional investors subject to Solvency II requirements.