Asset Providers

Asset providers are known to be highly sophisticated investors and are recognised as Hedge Funds, Private Equity Funds, Sovereign Wealth Funds, Private Family Offices and institutions that tend to be cash rich. Apart from the institutions that are cash rich, these entities are bound together as they all have very large balance sheets and as a result have access to a large portfolio of assets.

For an in-depth analysis on Hedge Funds, Private Equity Funds, Sovereign Wealth Funds, and Private Family Offices please go to “Definitions of an Asset Provider”.

Asset providers are a geographically diverse group. The top twelve cities where hedge funds are located in terms of “jobs” are New York, London, Chicago, Greenwich USA, Boston, Geneva, Hong Kong, San Francisco, Dallas and Stamford USA.

Private Equity Funds are located in financial centres all over the world such as London, New York, Hong Kong, Singapore, Dubai and Frankfurt to mention but a very few. Interestingly the top ten locations by numbers in the world where private equity funds are located are all in the USA with New York, Chicago, Dallas and Los Angeles being the top four.

Sovereign Wealth Funds as the name suggests are owned by the government of the country concerned. However, many of the bigger sovereign wealth funds will have representative or full subsidiary offices in the financial capitals of other countries. For example, Temasek is a sovereign wealth fund of Singapore and has an office in London and New York.

Again, Family offices are located in all major financial centres in the world. Some of these offices split their administrative and trading offices for a variety of reasons, tax reasons usually being fairly close to or if not the number one spot. However, tax is not the only reason why a family office is located in a specific country. They will look at international compliance, political stability, accessibility, communications, human resources and the legal system.

As advised under “Who are Asset Providers”, asset providers have under their control a huge and diverse portfolio of assets, especially hedge funds, sovereign wealth funds and family offices. As is often the case with a diverse asset portfolio there will be a number of assets that are paying relatively low returns such as medium-term notes, (MTN’s) or government bonds.

The asset providers will utilise these low return assets as collateral and instruct their bankers to issue on their behalf either a Bank Guarantee or a Standby Letter of Credit, (depending on the jurisdiction).

The bank instruments are in effect leased in the Collateral Transfer market usually for one year where they will net a much higher return than the assets pledged as security. The return the asset provider can expect from leasing a Bank Guarantee or Standby Letter of Credit is circa 6%. The net result is the low return assets are now reflecting a much higher overall return on the asset provider’s balance sheet.

For more information on collateral transfer please go to, Collateral Transfer an Overview

There are two assets that asset providers supply, a Bank Guarantee and subject to jurisdiction, a Standby Letter of Credit. As advised above both these instruments will on average be leased for a year for Collateral Transfer purposes. A definition of these two bank instruments are advised below:

Bank Guarantee

A Bank Guarantee also known as a Letter of Guarantee is a banking instrument and is an unconditional promise to pay the Beneficiary by the Issuing Bank. Payment occurs should the Applicant/Provider fail to honour their contractual or financial obligations to the Beneficiary.

Standby Letter of Credit

A Standby Letter of Credit is a banking instrument and it is used mainly to underpin Trade Finance transactions. A Standby Letter of Credit is a payment of last resort and a commitment to pay the seller by the issuing bank. Payment will only occur if the issuing bank’s client, the buyer, defaults on their financial obligations to the seller.