Stronghold solutions increase returns to General Partners & enable them to access the world’s largest pools of capital at terms & scale otherwise unavailable - Raise more AUM from institutional investors already invested; Reach a broader range of institutional investors; Stabilize AUM; & Lower the cost of access to capital.
Alternative to Alternative Financing
Increase AUM
Prior to Stronghold’s innovations, managers could only access institutional investors’ alternative allocations. Stronghold solutions enable alternative managers to offer their current institutional clients off-balance sheet exposure to the upside of an alternative manager’s performance with no downside risk. Rather than a direct investment, an institutional investor purchases a legally defeased investment grade bond. The issuing protected cell then makes a direct investment in the designated fund.
Stronghold designed instruments supply additional incentives to insurance company investors. Direct alternative investments by insurance companies receive a 100% capital charge under governing Risked Based Capital regulation. Stronghold designed instruments receive a di minimis capital charge under all Risked Based Capital regulatory regimes. While such regulated entities can hold alternative investments, they cannot write business against alternative investments. An insurance can write business against Stronghold designed instruments and would typically expect to receive as much as 6% a year on the policies written against such a Tier 1 Risk Based Capital asset.
Institutional investors can expect an enhanced yield on a principal protected instrument. The attractive risk-adjusted return for any institutional investor gives alternative managers access to more investment from institutional clients they already have and the ability to attract new institutional clients otherwise inaccessible to them.
Stabilize AUM for hedge funds
Limited Partnership investments from a Stronghold program seek to exit the fund as the fund’s performance rises and stays invested during drawdowns, because of the nature of a Stronghold programs goal of redeeming the instrument by compensated prepayment. As such, a Stronghold investment offsets the action of a typical direct investor in a hedge fund which withdrawals when performance falls and stays when performance rises. Stronghold investment stabilizes hedge fund AUM.
Patient Capital
Stronghold engineers solutions to optimize the interest of an alternative manager and institutional investors. Stronghold solutions take into account an alternative investment’s project return profile and can provide patient and supportive investment. Details available under NDA.
Alternative Investment without Limited Partners
An Alternative Investment firm’s General Partners can purchase a Stronghold designed bond by putting up 10% of a bond’s face value at closing and borrowing the remaining 90% from their own bank. The bond serves as collateral in an over-collateralized securities lending transaction. The Stronghold program makes a loan to the General Partners at agreed terms, which they invest for themselves. This solution can provide General Partners 4X leverage at very reasonable rates. Inherent benefits include:
- No marketing requirements to sustain the fund;
- No limited partners;
- No withdrawals on a Limited Parter’s schedule.
- AUM Stability
Details available under NDA.
Transaction Overview