A High Net Worth client wanted to maximise the use of capital for a specific luxury asset purchase. Due to the nature of the asset direct funding was proving expensive to arrange with onerous terms and conditions.
An alternative funding option was investigated.
The client had significant assets under management with a long established discretionary fund manager. Contact was made with a London based Private Bank to consider an equity backed funding line. A discretionary funding line was approved by placing custody of a portion of the assets directly with the Private Bank. The underlying asset management remained with the long established discretionary fund management provider enabling the overriding asset management strategy to be realised.
A fully flexible funding line of up 70% of the assets lodged with the Private Bank was put in place.
This allowed the client to purchase the luxury asset by importantly utilising only 30% of his capital. With a loan margin of 100 basis points on the underlying loan structure the client was able to make a capital return on the assets securing the loan structure.
The loan was made on an interest only and flexible basis which is what the client initially requested.
In essence, a fully flexible facility to be used at any time where the interest cost is negated by the growth in the underlying equity portfolio.